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Choosing a super fund amid the noise and confusion just takes some work

Give serious consideration to any move to change your super fund.

Give serious consideration to any move to change your super fund. Photo: Getty

Choosing a superannuation fund is likely one of the most important financial decisions you will ever make, but for many it is not one they think about much.

There are lots of circumstances that will appear in life when the decision will need to be made – most obviously when you start work seriously after education or training.

If you’ve got some super from student jobs in Hostplus or Rest Super from hospitality or retail work, check the fund your employer would like to sign you up to, which is probably the default fund for your industry.

Have a look at its returns – easy to do online – then check with your existing fund.

Roll over

If you decide to go with the new fund, roll over your existing super accounts into it so you are only paying one lot of fees.

Antoinette Mullins, principal with Steps Financial, says take care when choosing a fund and make sure you understand fee structures.

“There is a product cost that is a fixed dollar cost as well as a percentage,” she said.

On top of that there is an investment fee.

To get full details on both go to the fund’s product disclosure statement (PDS).

Top-performing balanced super funds to May 31, 2024

Source: SuperRatings

Fees can differ markedly depending on how the fund operates.

For example, plain vanilla default or balanced funds like UniSuper or AustralianSuper charge annual fees of $387 on a balance of $50,000.

UniSuper’s balanced option has delivered performance of 8.9 per cent over the past year, and 6.9 per cent over five years, Canstar reports.

AustralianSuper’s balanced option has delivered 8.4 per cent and 7 per cent for those periods.

High-growth option

However, if you decide to ramp up the risk and get a better performance to build returns quicker, you can take the high-growth path.

Aware Super’s Hi Growth lifestyle option would cost $487 annually for the $50,000 balance. It has delivered 11.5 per cent in the past year and 8.3 per cent over five years.

Therefore the higher cost and risk of the Hi Growth option has delivered over the time frame assessed here.

If you are interested in investment and are prepared to do some ground work you might like to choose a retail or wrap fund.

That allows you to choose from a wide range of investments you  may wish to have in your fund.

They could include various overseas markets and asset types such as US tech stocks or biotechnology.

If you go down this path and you are not experienced Mullins says the best path is to “get some advice”.

“Talk to a financial adviser who can explain what the benefits and trends are to help you understand what products match your expectations,” Mullins said.

Best deal on super fees for a balanced fund of $50,000

Source: SuperRatings

Basic options

Of course if you want to keep things simple and cheap then you could go for a balanced or growth option in a basic industry or retail fund.

“Generally there is a distinction between industry and commercial funds, with not-for-profit funds charging lower fees which gives them higher returns net of costs.” Nicholas Gruen of Lateral Economics said.

Although that has been true over time, APRA’s public performance testing of funds has forced a reduction of fees among the retail for-profit sector, so check the PDS of funds you are considering to ensure you get the latest on fees and performance.

Super is not just about fees and performance.

Insurance

Basic super funds offer insurance to members that will include life cover and total and permanent disability cover (TPD).

Some offer income protection also.

This is something to think about also in terms of your needs.

If you are under 25 or have less than $6000 in your account, funds don’t have to offer this.

So you need to think about it.

If you have family responsibilities or are in a dangerous job like building, you will probably need it.

But make sure you know what is on offer and how much you are prepared to pay for it.

Triggers to change funds

A number of events can trigger a need to change your super provider.

If you get a letter from APRA saying your fund is a serial underperformer, you are losing opportunity cost to develop the maximum retirement benefit so it could be time to go.

You could also be changing employer and be offered a place in a fund that your new boss favours.

Remember you don’t have to go and make sure you consider what is on offer in the new fund before you move.

Environmental factors

Increasingly people are making choices to invest in funds that promise environmental and social benefits.

But some of those members have seen media stories saying their fund is not keeping its commitments and is investing more in fossil fuels or other polluting technologies.

Environmental financial researcher Market Forces recently found that investment by Australia’s largest 30 super funds in high-polluting companies rose from $19 billion to $39 billion since 2021 while clean energy investments by super funds fell $500 million to $7.7 billion in that time.

Regulators are cracking down on what is known as “greenwashing”, with retail fund group Mercer to pay $11.3 million in fines over not delivering the environmental program promised.

If those situations drive your investment decisions, you might want to change funds as a result.

However Gruen preaches caution, saying you should look at the overall situation with the fund.

You might find, for example, a fund boosting investment in gas production may be helping create lower emissions as those investments will encourage a move away from coal power generation.

“Be careful because a lot of [claims about] environment, social and governance have strong public relations imperatives rather than imperatives on the merit of investments,” Gruen said.

Insurance thoughts

If you are looking to change your fund Mullins suggests having a good look at your insurance needs.

If you have signed up for default insurances provided by your fund to new members, make sure these can be replicated at a reasonable cost in a new fund.

Also, “If you have employer-sponsored insurances in your fund subsidised by your employer check they can be put in a new fund or you might lose out on valuable cover,” Mullins said.

The New Daily is owned by Industry Super Holdings

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