If retirement feels like a long way off, which super fund your money is invested in may be the last thing on your mind. But it will pay to have a say in the matter, because having the wrong super fund can really eat into your potential savings. A 1% difference in fees or performance, for example, could add up to a 20% difference in your balance over 30 years, according to government website [moneysmart.gov.au].
Not everyone has a choice, though. Certain employees covered by industrial agreements and members of defined benefit funds can’t choose. But if you are able to, there are a number of factors to take into account when comparing funds.
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When it comes down to the nitty-gritty of comparing funds, there are six key issues to consider.
1. Superannuation fees
All super funds charge fees but some are higher than others, and you might be surprised what effect those fees will have on your balance. The main one to look for is the management fee, which is usually a percentage of your balance. Others include entry and exit fees, extra contribution fees, investment strategy switching fees and insurance premiums. All these fees should be listed in the product disclosure statement.
2. Super funds investment options
Many super funds let you choose the strategy for how your money is invested. If you’re especially interested in socially responsible investing, for example, you may want to look for a fund that offers that option. You don’t have to choose and if you don’t your money is usually in the “default” option. This is often a balanced option, which may not necessarily be the right one for you depending on your age, your attitude to risk and how much money you want at retirement.
3. Super fund performance
Although you’ve probably heard the expression that past performance is no guarantee of future returns, it’s still worth looking at how a fund has performed. If it is consistently bad you should probably steer clear. Don’t just look at the one-year return; look at the fund’s performance over a longer period.
When looking at performance figures it’s important to use the same start and finish dates for each fund to make sure you’re comparing like with like. Even one month can make a difference depending on how markets have performed. Also make sure you’re comparing the same type of investment option – don’t compare a growth option with one that invests in international shares, for example.
4. Superannuation insurance
You are automatically given a certain level of cover but you may be able to increase it or take out income protection as well. The big advantage for many families of having [insurance through super] is that it helps with cash flow. Premiums are paid by your employer’s contribution and do not come out of the family budget. Make sure you take a look at the cover on offer and how much it costs.
5. Superannuation extras
Some super funds offer extra services to their members. Examples include discounted home loans or health insurance and regular educational seminars. You may also think about whether the fund offers a pension option for when you’re in retirement and want to draw on your money.
Another extra could be access to financial advice, although it may cost more.
6. Service
You may also consider how “consumer friendly” a super fund is. For example, does it have a good help line and website and will you be sent regular performance updates? Also find out what kind of information a fund provides to members and whether you can you understand it.
