Let’s be honest, what we all really want from our superannuation/pension fund is:
Sorry to disappoint you, but none of the super funds will do that for you.
So, unfortunately as with anything else in life, to make a good choice, you need to do a bit of work and research. But I am here to help you and give you some suggestions how to make this process easier.
But first, let’s start with the most important information about superannuation in Australia, which I can see is still a confusion:
From 1st January 2021 the super choice law was extended giving more Australians ability to choose their own superannuation fund – so you are no longer locked into your employer’s super fund.
So every employer needs to offer their employees a choice of fund, Here is the link to the Tax Office page where you can find more information:
There are lots of videos and articles you can find that give information about “the best super fund”, but mainly what I see is the advice to choose your fund based on level of fees or as the government advertises – based on performance.
As important as those are, there is no such thing as the best super fund. There are over 500 superannuation funds in Australia and thousands of different investment choices. Choosing one can feel like a daunting task.
Choosing the super fund that will best suit your needs, as I said is complex, and requires a bit of work on your part. So, I will go over the steps that I take when choosing and recommending a fund for my clients.
What types of super funds can you choose from and how they differ?
Your employer will likely provide you with a Superannuation Standard Choice Form when you commence your employment with them. Alternatively, you can download this form from the Australian Taxation Office’s website, but I actually listed the link below the video, to make it easier for you:
What should you look for in a super fund or a pension fund?
1. Good selection of investment options
Let’s be honest, the selection you make in your investments, asset allocation and fund managers will be the biggest determinator of the investment performance and return of your fund.
The name Balanced option, or Growth fund or Conservative fund does not mean the same investment mix of assets when comparing superannuation funds. Each can have a completely different asset allocation, with different exposure to different industries and ultimately provide different investment outcomes and returns, I can tell you one little secret – no financial planner will ever use default funds such as conservative, balanced or growth portfolio. Why?
A balanced fund from one super fund does not have to equal a balanced fund of another super fund (that goes for all different asset allocation).
As you know a good portfolio is a mix of growth and defensive assets, for example the range of investment into:
The problem is that still, there is no industry standard to say what the defensive, conservative, balanced, or growth fund is, It is up to your super fund trustee to decide.
So, if they differ between super funds greatly, how can you compare them? It is like comparing and apple with….. a pear, and believe me, your fund’s return will depend on that choice more than anything else over the long term.
Also, the word of caution: those default mixed fund tend to be some of the more expensive options, and what’s more, you don’t really know how your money is invested. And isn’t the point of investing to be able to choose where you want your money to be? which industries you want to support?
So, look through the PDS and list of funds available. Do you have a choice of specialist funds? Then you can choose the ones that are the best in:
With a little research, you can create your own investment portfolio that will:
But make sure you are always able to change and update the portfolio at any point in time.
And remember: Past performance is no guarantee for future performance of any Superannuation Fund; however a good investment mix should provide a good long-term return that will boost your retirement nest-egg.
2. Appropriate insurance (does not apply to pension funds)
Is your super choice always better that your employer provided super fund?
No, not always and before you dismiss the fund your employer provides, you better check the insurance options available to you.
If you still have a mortgage or a family that depends on your income, your personal insurance might be more important than all the investment choices or even low fees. And if you have a serious medical issue, you may find that no insurance is available to you in the retail market or is above your budget due to high costs.
Therefore, if through your employer you are offered access to a corporate super fund, this could be the best option for you, as the insurance cover is underwritten on wholesale basis. And then, you don’t have to go through any underwriting and hopefully you can get the cover you need to provide financial security for your family, should something happen to you.
Insurance included can be:
There are many advantages to have insurance through super, but there are disadvantages as well, so you need to be aware and make an informed decision.
3. Superannuation & Pension fund fees and charges
Now we are coming to the hottest topic – that was so loudly underlined by the Bearfoot Investor author Scott Pape. Yes, I did read the book, and yes, I agree, this is a terrific book as a starting point, but only as a start to your financial journey.
Do I agree that Hostplus is the best super fund?
NO! As I said before, there is no such thing as the best super – and I hope I managed to explain those reasons by now.
You really have to find a superannuation fund that suits you and provides all the benefits you either want or need.
What fees can you expect to pay to the super fund?
Another misleading information about fees when comparing funds. You cannot compare costs of investing into the International Share manager to Australian Share one. Both are growth assets, but costs to invest into international shares as well as the necessary research is so much greater, which will impact on the level of the investment fee payable for such a fund. Again, it is not comparing apple with apple, but I do not see anyone disclosing that.
Some super funds may have more types of fees, so read the PDS of the fund you are considering.
4. What other services does the superannuation fund or pension fund offer?
Some super funds are much more progressive that others, again check what you need and what you don’t as each additional service might cost you extra. For example:
A word of caution, industry funds for years have been bashing financial planners for charging fees for their services. The truth of a matter is only general advice is available from your super fund for free. If you wish to receive detailed, personalised financial advice, you will be charged a fee for the advice of a financial planner who is employed by that super fund.
Also, just to make sure that you are fully aware, the financial planner that is not aligned with any financial institution will provide you with impartial and the most diligent advice looking at all industry options that are the best for you. The financial planner of the super fund has underlying interest to ensure that you stay with that fund, hence this is an advice as for the best interest of the super fund and not necessary for you as a client.
I know this is a long(ish) article, but I hope you got hips of valuable information here. Just to recap those steps:
If you are still unsure, or just simply you want the best choice, just speak to a financial planner, we are specialist in this area, we have access to lots of extra data of all super funds in Australia.
If you do not have a financial planner, reach out, I am here to help you email@example.com
If you would like to learn more about investing, enjoy this special eBook addition: 12 Investment Principles https://ebook.aboutretirement.com.au/12-principles-of-investing-download
If on the other hand, you are like me, and like to learn by listening to videos, visit my YouTube channel https://www.youtube.com/channel/UCDk9dWm09u0WwiMoJtYhXsg?view_as=subscriber