How to compare funds
|Since 2006, most Australians have been able to choose a superannuation fund into which their contributions are paid. If you are unsure whether you are entitled to choice of fund, speak to your employer.
If you do not choose your own fund, your employer will pay your super contributions into a "default" fund which they have already chosen. Before choosing your own fund, talk to your employer about the default fund; it may provide additional benefits, as often these funds have discount insurance and a fee scale that reduces as the number of employees increases.
So, if you are comparing different funds, as well as considering your own requirements, here are a few things to look out for:
What to look out for
|Types of funds
There are two types of funds, accumulation fund and defined benefit funds. Most funds are accumulation funds, where you accumulate your super and end up with an account balance at retirement from which you can draw a pension. The accumulation funds from which you can choose, range from master trusts where your money is managed for you through the investments you choose, through to self managed super funds (DIY) where you manage the fund yourself. It really comes down to how much involvement you want in managing your fund, the flexibility required and the range of investment options and services from which you will benefit.
Products and services
You need to evaluate the range of services that come as part of a fund you choose. Some funds offer forums to update members on saving and tax strategies and the changing rules around superannuation. Other funds provide various levels of financial advice as part of their service.
Check out the insurance cover and make sure you can get the level of insurance you require. Insurance is generally much cheaper and tax effective through super. Also if you are changing funds, make sure you do not lose any insurance benefits when you move, particularly if your health circumstances have changed recently.
You should compare the investment choices, and work out how much flexibility you want in changing these options. A master trust blends options together to provide a measured approach to diversification and risk, allowing you a more passive approach to managing your investments. You may want to take a look at the risk profiler to see what type of investor you are, and what investments match your profile.
For instance some funds allow investments in over 60 managed funds and the ability to invest in direct shares from the ASX 300. This is not only popular with those seeking investment flexibility but also those who wish to have the benefits of a DIY fund without the cost of the usual legal, tax and portfolio management overheads that make DIY funds expensive for those with smaller balances.
For information regarding such funds click
Because superannuation is a long-term investment, you should compare investment performance over at least a 5 year time frame. Make sure you are comparing apples with apples. For instance, that all returns you are comparing are after fees and tax. Bear in mind that past performance is no guarantee of future performance. Similarly, ensure when you are comparing master trusts that the returns for the investments at which you are looking are like-for-like. Not all "balanced funds" have the same percentage of asset allocations. Those with a higher percentage of growth assets are likely to have higher returns over the long term. It is well worth seeking advice if you need help with investments. Need a financial adviser? click here.
||Don't be fooled by media reports or marketing materials highlighting last year's best-performing super funds. Last year's best-performing fund could just as easily be next year's worst. Investments through superannuation funds are long term (20-30 years) and therefore performance comparisons should be made on the basis of long-term performance, not whether a fund has one good or bad year.
Fees and charges
It is a requirement that super funds show all fees and charges in their Product Disclosure Statement (PDS). Generally there are administration fees charged to run the fund, and investment management fees charged to manage the investments. In addition there can be fees to change investments, withdraw funds or transfer your money and other service fees.
||Don't forget, you only get what you pay for, and so the cheapest is
not always the best. At the end of the day, you need value for money. Generally speaking the more features offered and the more flexibility built into the fund, the higher the fees will be. Many funds provide financial advice as part of their products as well.
Going through an adviser will usually cost more in fees. Some funds sell directly, with the result of lower fees because you do not receive financial advice. If you want to cut out the middle-man and go direct, click here.
There is a wide variation in the additional services provided by funds. Some funds provide access to free financial planning, regular newsletters and online access to statements and other useful information. Other funds may provide home loans and discount insurance. Typically Death and TPD and salary continuance insurance can be offered through super. So consider which of these additional benefits are important to you, and which ones will give you value.
Communication and reporting
How well does your super fund report the performance of your fund and relay other important information to you? Features such as a comprehensive website and the ability to contact the fund by phone may be important to you.
Education and advice
||Some super funds offer financial education and subsidised financial planning services. These can offer useful insights and strategies for your entire financial needs. Given the complexities of choosing a super fund it is recommended you seek independent financial advice before changing your fund. Need an adviser? click here.