Where and how your superannuation is invested is an important decision that all Australians need to consider. Superannuation is one of an individual’s biggest assets and is the money that you put aside whilst you are working to maintain and fund your life in retirement. This is built up over time through both your employer’s super guarantee contribution (SG) which is now 10% of your ordinary time earnings and other personal contributions that can be made. However, whether your super is effectively invested is a consideration that could make a big difference down the track.
Types of super funds
There are a variety of different super funds available today including industry and retail super funds. To read more about the differences between these two funds, click here. There are advantages and disadvantages of both industry and retail funds and therefore it is important to weigh up the costs, benefits, and risks of the different options available to you.
All super funds charge fees to invest your superannuation. There are four types of super fees that funds commonly charged and are usually deducted from your account balance when they fall due. These include:
- Administration fees – the general cost of managing your super account which can be charged as a fixed fee, on a percentage basis or a combination of both. If you have an account balance below $6,000 your administration and investment fees are capped at 3% of your account balance.
- Investment management fees – are charged for managing your investments and may be paid to investment managers or brokers. This is usually charged as a percentage-based fee and will be contingent on your specific investment option.
- Performance fees – some super funds charge this fee once certain targets have been exceeded which are calculated as a percentage of the investment returns over a certain level of return
- And other fees such as investment fees and buy/sell spreads – some funds may charge you if you decide to switch between investment options e.g., from a balanced to a high growth option. You may also be charged fees when buying or selling investment units.
Although this may seem like superfunds charge an extensive range of fees, it is important to note that the Federal Government since 2019 has prohibited super funds from charging their members any exit fees if you decide to move all or part of your super balance to a different fund. This was in response to the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in 2019.
It is important that you are aware of the fees being incurred as a result of having your super invested with a particular fund and to ensure they are appropriate and proportional to your super balance. Superfunds are now required to show the fees charged on balances of $50,000 which can be found in your fund’s product disclosure statement. If you think that your super balance is being swallowed up by fees and you are not getting a bang for your buck, it is a good idea to conduct some cost comparisons between the other super funds available to you.
Does your first superfund choice match your current circumstance?
It is likely that when you began working you were set up with the default super fund of your employer or you may have chosen the one your parents were members of. If this is the case, it is a good idea to investigate whether this choice is still appropriate for your current financial circumstances as well as your short or long terms goals and objectives. Therefore, contingent on the timeframes around your goals or the stage you are at in life your superfund or your current investment choice may need adjusting to accommodate for these changes.
Accessibility and contributions
Technology has enabled Australians to have greater control and better manage their super as many super funds use applications or easy to use web portals that allow their members to be across their super balance and investment options. However, if your superannuation fund makes it challenging to access your balance, view its performance or make regular contributions you may want to consider some other options.
Making regular contributions to your superannuation in conjunction with the SG your employer pays is a worthwhile way to boost your current super balance as well as take advantage of the tax concessions associated with some forms of contributions. To read more about the different super contributions available to you, click here.
When deciding whether you are in the correct super fund and investment choice it is a good idea to look at the historical performance of both the superfund as well as the specific way your super is invested.
Studies conducted by the Australian Prudential Regulation Authority have suggested that the average annual rate of return for all APRA-regulated funds to December 2020 was 3.1%. Public sector funds (up 3.6%) and industry funds (up 3.4%) outperformed, while corporate funds returned 2.7% and retail funds with an annual return of 2.3%
However, when looking at the numbers it is important to remember that past performance is not indicative of future performance and therefore it is crucial that investors keep this in mind.
Before making any decisions, it is important to consider all the benefits, risks and costs associated with switching super funds. If you are seeking guidance and wish to discuss the options available to you, click here to organise a complimentary 20-minute phone call with an EPG Wealth adviser.