For just over a year now, Australians have been able to choose their own superannuation fund. But for those of us who are looking to take up the option to switch, how easy is it to compare the plethora of funds currently available in the market?
It can appear as if every man and his dog is now giving ‘star’ ratings to schemes in the market, and the advertising war of words between industry and retail funds has only added further confusion, with one side focusing on the benefit of lower fees, and the other the value of higher investment returns. So when examining the comparable market data, which areas should consumers focus on?
Jeff Bresnahan, managing director of Super Ratings which provides fund comparisons, says: “Investment returns are just one piece of the puzzle. It’s no good having an above average performing fund if you are paying the world for it. Both returns and fees are the keys to a satisfactory retirement.”
In terms of investment performance, Bresnahan says individuals should examine the five-year performance of any fund under consideration, and compare this to the industry average. The latter is reported by the Australian Securities and Investments Commission online, which provides five and 10-year performance figures for growth, balanced, capital stable and capital guaranteed funds.
Bresnahan adds: “If it is below the industry average, then you really need to start asking questions and maybe consider moving funds. Don’t take too much notice of the latest 12-month return as super returns really need to be viewed on a five or seven-year time frame.”
With more funds now allowing members to tailor the asset mix, it is worth remembering that you are, to a certain extent, in control of your own investment performance. Selecting only a high growth option will mean that you will have to ride out the good times in the share markets as well as the bad. A balanced fund may not reach the same highs, but is more likely to avoid terrible lows and provide more consistent returns.
With regards to fees, Bresnahan says that as a general rule of thumb someone with over $50,000 in their super pot shouldn’t be paying more than 1.4 per cent in total fees (including both investment and administration costs) while an individual with over $100,000 should be paying less than 1 per cent.
All research houses will use a different methodology in rating super fund performance, which accounts for the variation in stars, so you may need to take a closer look at the factors taken into account by each research organisation. And ultimately, you get what you pay for. A website providing free super comparisons may actually be taking advertising revenue from the funds themselves, creating a conflict of interest. So be mindful of where you get your information from.
In fact, you don’t necessarily need to spend a fortune to get the facts. Bresnahan suggests purchasing some summary information as a first step, to narrow down your choices, then getting a copy of the Product Disclosure Statements to see which fund you are more comfortable with. He adds: “If you can’t decide, one fund may have a service centre in your city, while another may have better online services. It’s your choice.”
The inclusion of life insurance is another factor to consider – most funds include this automatically but the costs can vary quite significantly. For those people with medical problems, this could have a major impact on their fund choice..
Bresnahan has the final word: “Remember that choosing the right fund could mean that you retire with 40 per cent more than your neighbour. In dollar terms, this could be the difference between retiring with $350,000 or $500,000.” Sage advice indeed.