A reasonable motivation for changing super funds is when the fees you pay in your existing fund are significantly higher than other super funds; and you’re not getting anything extra for the higher fees.
Nearly 70% of fund members are in funds with reasonable fees. Not-for-profit funds such as industry, corporate and public sector funds usually charge the lowest fees because they don’t have to factor in a profit to be paid to shareholders. Also, they usually don’t pay commissions to financial planners.
Retail funds charge the highest fees because they cover any financial advice you may receive, and the organisation running the fund has to make a profit. If you’re planning to leave a retail fund, watch out for any exit fees you may have to pay.
Some super funds run for profit are known as wholesale funds, and the fees on these types of funds can be reasonable but you can’t usually join them as an individual.
Comparing fees is a minefield. Depending on your fund, similar fees have different names. They may be itemised or grouped, similar services may be charged differently and fees may be taken from the overall fund or from your individual account balance.
Some not-for-profit funds call charges such as investment fees ‘costs’ as they’re taken from the overall fund instead of each member’s account. This means they’re not even listed in a fund’s fee disclosure.
Under the Financial Services Reform Act (FSRA) financial service providers must give all potential customers a product disclosure statement (PDS), detailing any fees, what they’re for and who they go to — particularly if they include commissions for financial planners. Our PDS checklist will help you wade through the information in your fund’s PDS.
Knowing your fund charges a certain percentage of its earnings in fees is not enough; you need to know how those fees affect your final account balance. A 1% ongoing management fee might not sound like much, but over 30 years it adds up to a large chunk of your nest egg — you’ll lose $100 for every $10,000 in your account every single year.
1. Super calculator
How much annual income can you realistically expect from your super? Use a super calculator to find out, such as the one at FIDO website.
2. Super fund report cards
For a limited time members will have discounted access to SelectingSuper’s comparative super fund report cards for $99 instead of $169. Go to www.selectingsuper.com.au for more information.
Use our guide to understanding the essential elements of a super product disclosure statement.
All super funds have to give prospective members a PDS to help them make informed choices.
Use the PDS of each fund you consider to look out for information on:
Investment options – These are the broad investment categories a fund invests in. They include capital-guaranteed, capital-stable, balanced and growth. They vary in their asset mix (cash, bonds, international shares, property, Australian shares and so on) and risk. Check how many you can choose from and the investment strategy and risk level of each option’s investment mix. Your statement should tell you what proportion you have invested in different assets.
Past performance – Although past performance does not indicate future results, you need to know if you’ve got a lemon. Check returns over the last five years and compare with similar options from different funds. Do some research – find out how well investment markets have performed in that period.
Fees – Check whether fees are shown before or after tax. If shown after tax is taken out they’ll appear 15% cheaper than they actually are (a $100 fee will appear as only $85 if shown net of tax).
A worked example of fees – A good PDS should provide a worked example of fees in dollar terms. Use this to calculate the impact of fees on your own account by substituting your own balance and fee details.
Taxes you will have to pay – Taxes are the same across funds. You will be taxed on contributions, earnings and payouts.
Insurance options – You may have the option of death, “permanent or total disability” or income protection cover. Find out what’s on offer and how much it costs. Super insurance offers are often more affordable than regular insurance products and you can pay for them out of your contributions.
The mechanics – Your fund should let you know how to open or close an account, switch investment options, how to receive payouts and any contact details you might need.
General fund information – The number of members, where its investments are, the level of assets held and fund size.