Reasons to get to know your super
High fees and poor returns will harm your retirement lifestyle
How well your super is tracking depends on a few key areas: how much you contribute, the amount taken out in investment fees and operating costs and – critically – your fund’s performance. It’s that straightforward. Why, then, do people take a lackadaisical approach to it?
The simple answer is that so much of what happens in super takes place automatically without much effort on the part of the member. Most people are defaulted into their employer’s fund with contributions made on their behalf. But this passivity can come at a cost.
“Contributions come out of what would otherwise be your wages. It is the member’s money and people should never forget that,” says Alex Dunnin, executive director of research and compliance at Rainmaker Group, which publishes Money.
“We don’t actually see it, so people seem to think, ‘I’ve got super and I’ll be okay.’ But you might wonder, ‘Maybe I’m in a great fund – or maybe it’s a dud fund or one that’s ripping me off.’ In some ways it is the Achilles heel of the system but also its greatest strength: it has enabled people to build considerable nest eggs and it has also benefited the broader economy.”
Time squandered in a dud fund has real-life consequences: it will determine what you forgo in retirement income later. The only alternative is to be actively involved and check how your fund stacks up against the rest. Without making such comparisons you’ll be working in the dark.
Most members are in the default product, MySuper, which comes in two types: a diversified single-strategy product that spreads your savings across the major asset classes and a lifecycle version that invests according to your age.
“You’ve got to start paying attention to it and take control, it’s so easy to do,” says Dunnin. “It transforms how you deal with super when you realise just how important it is.”
So where to start?
Your fund’s website should disclose fees and performance. “The fund’s dashboard is one way of doing it – it’s a damn good start,” says Dunnin. “It will tell you how the fund is going and what its costs are.”
You should also check your annual statement and all correspondence.
“Then check how your fund ranks against others. Look at its performance over five years – it’s a good medium term. Is it good or bad compared to its peers? Is it above or below average? If it’s above average, that’s good.
“Some funds are consistently in the top 10 of those league tables. There are others that are consistently at the bottom. It’s like a footy team – you’ll find some teams are always near the bottom and they rarely get anywhere near the finals. So if you’re not getting good returns, maybe you are in the wrong fund.”
As a rule of thumb, over a 10-year period super funds aim to beat inflation by 3%-5% a year, he says.
“By and large super funds are doing that in a canter,” says Dunnin.
Fees matter too – the more a fund charges, the less there is for you. The average fee is about 1% but could drop further, says Dunnin. There are some MySuper products that are charging fees of about 0.6%. He says two-thirds of fees are for investment management.
“If you want to lower fees, you’ve got to index your investment strategies. If you index, you are just following the market and that’s great. But there are lots of active funds that find ways to beat the benchmarks,” he says.
“If you go into one of those indexed products it will do well over the long run. It probably won’t become a number one fund over any particular time period but the long-term trajectory will be strong.”
He says while some expensive funds are still out there, most are efficiently run. “All the questions on fees are fine, but you
don’t retire on low fees; you retire on the money in your account. If you ask who are the top-performing funds after taking fees into account, you realise some of those funds have high fees, some have low fees and some have medium fees,” he says.
Performance doesn’t change overnight. Don’t react to what the return was this week, or this month, but be interested in how it’s going over three to five years.
It’s great if the fund has a good performance history over longer periods, but don’t cut yourself off from some of the newer products that are innovative, says Dunnin.
Finally, if you’re in a dud it’s easy to move funds – and it’s free.
“If you’ve decided to switch to a fund, go on to its website and there’ll be a form you can click on, and they’ll do it all for you. It’s that easy,” he says.
Vita Palestrant was editor of the Money section of The Sydney Morning Herald and The Age. She has worked on major newspapers overseas.