Called to account
Find out how your fund calculates the value of your investment
How does your super fund calculate the dollar value of your account balance to reflect market performance? What happens when you switch investment options, change to a new provider or go into pension mode? Understanding how pricing works can be useful.
To calculate and update the changing value of your investment option, super funds use one of two methods: unit pricing or crediting rates. While industry funds have long used crediting rates, many have now switched to unit pricing – the preferred method of retail funds.
At its most basic level, unit prices give you a snapshot of what your super is worth at a specific point in time.
“It’s much the same as what happens with share prices,” says Philip La Greca, executive manager, SMSF technical and strategic solutions, at SuperConcepts. “It’s basically saying the underlying assets of a company are worth X amount, divided up based on how many people own a bit of the company and how many bits you own. It’s the same with unit pricing. You look at the underlying net assets of the trust and divide it by the number of units on issue.”
Unit prices move around, reflecting the performance of their underlying assets. When they go up your units increase in value; when they hit negative territory the unit prices drop.
“If the fund goes up by 10%, your units go from $1 to $1.10. If the assets go down by the same amount, it’s 90¢ per unit,” says Alex Dunnin, research director at Rainmaker.
Crediting rates – or investment returns – work in a similar fashion, reflecting changes in investment markets and asset values, he says. “When people talk about crediting rates they are saying this is the return you get after fees and tax and that should be what gets put into your account. There’s a view that unit pricing is a cleaner, more robust way of working out how much your investment is worth.
“Ironically, crediting uses the same methodology. It calculates things in the same way because it’s done on a unit structure but it’s not as locked down.
“The fund has a single pool of assets and the fund administrator tries to work out what your share of that is worth. It all comes down to how strong the system is. Just because it’s unit priced doesn’t mean it’s any more reliable than crediting rates.”
Another aspect of pricing is the difference between the “buy” unit price and the “sell” unit price. This is the buy/sell spread.
When your money goes into super, the buy unit price applies. When money comes out of your account – either to pay for insurance premiums, fees and tax, or to switch investment options or provider – the sell unit price is used.
“Sometimes if things don’t seem to make sense, it’s because there’s embedded brokerage, what the fund calls the buy/sell spread. If you swap all your money from one investment option to another, there’s going to be some sort of transaction cost,” says Dunnin.
“It might be the fund is saying, ‘Alex, your units are worth $1.10 but there’s a buy and sell spread of 3%.’ The fund is saying to give you your money back, there’s a brokerage fee, so you will get $1.10 a unit, less 3%.”
What happens when you switch to pension phase?
“If you stay in the same product with the same provider there should be no or minimal fees. What you are doing is simply turning on the income stream switch. But if you get your lump sum and take it elsewhere, you might find you have transaction fees,” he says.
To get the most out of your super fund, go onto its website to find out how it calculates your account balance.