Superannuation funds are basically a lifetime commitment. Choose the best match for you today, and you’ll be experiencing comfort and good living when you retire. Pick the wrong super fund, however, and you’ll be regretting your choices as you make do with less savings in the future. With such high stakes, here are the most effective tips for choosing the best superannuation fund.
If you’re in a position to choose a super fund, you need to know how to compare their fees, benefits, and coverage. Otherwise, you might end up ticking all the wrong options when your new employer gives you the standard choice form.
- Apples to Applies:
The first rule in comparing super funds is to compare the same factors with the same coverage. There’s no point comparing performance, for example, if you’re looking at the last year performance for one fund and the five-year performance for the other.
It can get easy to be confused with all of the details. With retail and industry funds competing for your consumer investment dollars, you need to be systematic. Here are four factors that are must-know in comparing superannuation funds.
- Competitive Super Fees:
Like with all administrative fees, the lower, the better. With low fees and costs, it’s more likely that you can build your super faster with the same assets. An extra 1% per year in fees may not seem like a lot when you’re still starting out, but as your balance grows, so does that extra 1% in dollar value. For example, a difference of 2.5% and 1% of total costs can mean up to $80000 in 30 years.
Aside from comparing how low the fees are, you also need to check how often the quoted fees will be charged on your account. If you’re not too careful, you might end up choosing a fund that has supposedly low fees, but more frequent charging.
Fees are dollar amounts or a percentage deducted from your account regularly. They can include the basic administration fees needed for operating the fund, investment fees, indirect costs paid to investment managers, advice fees for personal recommendations, switching fees, buy/sell spread fee for each transaction, and exit fees.
- Suitable Investment Options
Investment is one of the ways your money grows while it’s in a superannuation fund. Funds can keep your money as cash, or put it into bonds, property, Australian or international shares, or mixed assets. Just like competitive fees, you also need to compare investment options in the same category. Funds with a lot of property or private equity may have higher costs than bonds or locked-in cash, but they also have different risks and expected returns.
There’s also no point in comparing conservative investment options to growth investment options. It boils down to your risk-taking profile, needs, and level of comfort. If you are a moderate risk-taker, then you should probably consider only superannuation funds with balanced or conservative investment options.
To help you make a decision, ask for professional superannuation advice on what asset classes would fit you best.
- Good Insurance Coverage
Most super funds have default some level of personal insurance coverage. Usually, you’ll get a form of life insurance, which is a lump sum payment given to your beneficiaries upon your death. Some funds also have total and permanent disability insurance, as well as income protection insurance.
If you’re looking for a super fund with the best possible coverage, then you also need to compare this detail in the product disclosure statement found on their websites.
- High Performance
Finally, you need to look at the performance of these super funds. Because superannuation funds are a form of long-term investment, you should only compare the last five years. If you only look at the previous year, you might be fooled by the differences in performance. A small point difference in performance can add up to a big difference in total savings at the end of the day.
Aside from these four essential factors, you can also look at other benefits and services offered by the super fund. How easy is it to do transactions? Can you access your account details online? Do they provide personal financial planning advice and online superannuation calculators? These simple questions can make it easier to decide between close super fund options.
As much as possible, never go with the default option without any research. After all, the money put into the super fund is your hard-earned money. You need to have a say in where it goes.
When it comes to comparing superannuation funds, the Product Disclosure Statement (PDS) is your friend. This is a document available on the website of a super fund, and it lists essential must-knows such as the fees, investment options, benefits, and recent performance.
After some reading, you can also consult super fund comparison websites, as well as ask for professional superannuation advice.