Add up to $337k to your super: top funds
Almost five million Australians are in a dud MySuper fund, unaware that their retirement dreams could be wrecked. But it’s not too late to do something about it. Whether you’re in your 20s, 30s, 40s, 50s or early 60s, we show you how to dramatically boost
Iknow plenty of people who are in an awful superannuation fund. I ask them: “Why did you choose it?” The answers vary. Often an employer picked a fund run by a life company or a big bank. Or a financial planner or bank rep recommended a retail fund. Or they went into a default industry super fund that consistently underperformed. In some cases, people moved from a really good fund to one of the worst.
It is not uncommon to be in a bad super fund. In fact, 4.6 million Australians with $197 billion in a MySuper account are in a poorly performing fund, according to the Productivity Commission’s review of superannuation. Around 9.8 million Australians are in MySuper funds that perform above a benchmark designed by the commission.
What is alarming is that people don’t realise how much being in a poor fund is costing them and potentially derailing their retirement plans.
Researcher SuperRatings estimates that over a working life of 45 years the difference between being in a top-performing and a worst-performing fund means you could be $337,310 better off. SuperRatings’ data, exclusively compiled for Money magazine, shows the
impact of being in the right super fund compared with the worst for different age groups: the 20s, 30s, 40s, 50s and from 60 to 65. The consequences are huge.
Those in the worst fund in their 20s are $19,513 behind people in the best fund (over 10 years). As your earnings increase, your contributions grow, your balance increases and your insurance needs change, the losses would expand to $45,712 for someone in their 30s, $73,316 in their 40s, $116,406 in their 50s and $82,363 for 60- to 65-year-olds. That adds up to $337,310.
While this is a theoretical exercise, it highlights how vital it is to be engaged with your super to make sure you are in a low-cost, top-performing fund throughout your working life.
The good news is that most people have the legal right to change funds at any time. (See breakout.) So the sooner you move from a bad to a good fund the better. You will have more money in retirement or you may be able to retire earlier.
And it is never too late to change. If you are 50, moving from the worst fund to the best one means you would be $198,769 better off by the time you reach
65, according to SuperRatings. Although choosing the No. 1 fund is a big challenge, it’s easier to find one with consistently strong investment performance, low fees (investment, admin and member) and well-priced insurance with the features that match your needs.
The Productivity Commission says Australia’s $2.6 trillion super system has a bewildering 40,000 products. It describes the process of selecting a fund as “an unlucky lottery for many Australians and their families”.
SuperRatings has made it easy for you by showing the top five balanced funds for different ages, taking into account their past investment performance, fees and insurance. They are all public offer funds, which means they are open to everyone.
Two of them, QSuper and Equip, started out as funds for Queensland public sector and Victorian electricity workers respectively but have opened their doors. AustralianSuper, Hostplus, CareSuper, Rest, Cbus and Intrust are all industry funds.
What the top funds have in common is that they are run on the basis that all profits are returned to members. There are no dividends going to shareholders, as there are with the banks, insurance companies such as AMP and listed wrap providers.
Typically these not-for-profit funds have had consistently lower fees than retail funds. Fees can drag down investment performance.
The Productivity Commission says that fees for not-for-profit funds have been largely flat over time and on average remain well below those charged by retail funds. “And fees charged by retail funds remain relatively high, at least for choice products.”
It found that 14% of member accounts appear to be paying annual fees in excess of 1.5%.
The message is clear: look at the fees you pay as well as the outcomes from your super fund, says Kirby Rappell, CEO of SuperRatings.
SuperRatings’ top funds have all performed well in the past but it is impossible to know which ones will be the better performers in the future. Experience shows that in general high-fee funds tend to underperform. This occurs because their performance before fees is no better and often worse, so once their higher fees are deducted the net result is inferior.
Rappell says the performance of the top two funds across the age groups, Hostplus and CareSuper, was buoyed by active investment management strategies and their high allocation to growth assets and bigger than average allocation to alternative investments, including infrastructure, private equity and alternative credit. Their Australian and international share allocations performed well while defensive assets such as fixed interest and cash have been more muted.
Insurance is also part of your super and it is important to examine its costs. Twelve million Australians have insurance through their super and in 2016-17 they paid a total of $9 billion – up 35% from three years ago. The premiums come from your savings and over the life of your fund this can deplete your balance by as much as 14%, according to the Productivity Commission. If you are aged 40 to 60, there can be significant differences. (See pages 41-44.)
Unnecessary fees and insurance premiums in multiple accounts drain your savings, so it is best to consolidate them unless there is a sound reason not to. This has been made easier by the myGov website.
The Productivity Commission says that fixing the twin problems of entrenched underperformance and multiple accounts would lift retirement balances across the board.
Not-forprofit super funds returned 6.8%pa from 2005 to 2016. Retail funds returned 4.9%pa.