The things we consider when advising on super

Under the Government’s ‘Choice of Fund’ rules, many Australians have the right to choose which superannuation fund they would like to direct their compulsory employer superannuation contributions into.

When analysing a superannuation fund, we need to understand the rules of the particular fund, what benefits are offered and how your superannuation might be affected if you change jobs.

Whilst fees may impact the value of superannuation over time, there is a range of other things that also need to be considered as moving from one fund to another may not always be the best option.

1.    Fees

When making a comparison between superannuation funds, it is important to understand the fees that superannuation funds typically charge. Superannuation funds must show all significant fees in a table in the fund’s Product Disclosure Statement (PDS).  Typically superannuation funds fees are categorised into:

• Administration fees. These may be a fixed amount or a percentage of your investment in the fund, used to pay for the ongoing operational costs and administration of your fund.
  
  
• Investment fees. These are the fees charged by the fund's investment manager for the management of the investments within the superannuation fund.
  
  
• Advice fees. You may be paying an agreed adviser fee through your superannuation fund for the advice you receive.

While these are the main fees, there can be a variety of particular fees and charges in each fund. Accordingly, it can be difficult to know whether you are comparing apples with apples, so with any switching considerations require research and comparison.

2.    Investment Options

The number of investment options offered by a superannuation fund can range from a single option, to the choice of hundreds of Australian direct shares, Australian and international managed funds, direct and managed fixed interest investments, cash, direct and listed property and other assets. If investing via a Self Managed Super Fund (SMSF)  then there may be other investment options, which aren’t typically available in retail, employer or industry super funds. SMSFs don’t necessarily suit everyone as they come with a much larger responsibility on the member who takes on trustee responsibilities. You can read more about the advantages and disadvantages of SMSF in this article.

Whilst more investment options can seem attractive, the downside is that you can  pay more for the privilege of having greater choice. A superannuation fund should offer sufficient choice to assist in the investment of the superannuation savings in accordance with an investor risk profile, asset allocation benchmark, investment timeframe and objectives.

3.    Fund performance

Fund performance refers to the return on the superannuation savings each year. Since superannuation is a long-term investment, investment performance is often viewed with at least a five year time frame in mind. There is a difference between market performance (i.e. the performance of a specific asset class or the market as a whole) and the fund performance (the performance attributable to the investment decisions made by the team that is investing the superannuation savings). If a superannuation fund’s poor performance is due to tough market conditions such as the GLobal Financial Crisis (GFC), then other superannuation funds are likely to perform in a similar way. When looking at the track record of a superannuation fund it’s important to note that past returns do not guarantee future performance.

4.    Style of Fund

Broadly speaking, superannuation is structured in one of two styles – defined benefit or accumulation. Both styles have a unique set of characteristics that influence the way contributions are made and how any investment gains are treated. This can make comparing defined benefit accounts with accumulation accounts difficult as you’re not really comparing the same thing. Whilst most superannuation funds are now offered as accumulation style funds there are a number of defined benefit funds still available.

5.    Features and Benefits

Given the large variety of superannuation funds on offer, it’s no surprise there is also an extensive range of features and benefits offered as well. Some funds offer more flexible or extensive member services than others, for example, some funds might offer more extensive online access and tools, others may offer discounted members benefits such as financial planning services and discounted health insurance or home loans.

Some superannuation funds allow flexibility of contributions such as super splitting and other spouse superannuation accounts. Other funds provide more flexibility for pensioners with a product that makes it easier to transition to retirement or commence a pension when you retire.

When reviewing funds and making a comparison, it first pays to review the services on offer and consider what is actually of benefit to you.  

6.  Insurance Cover 

Things we need to check will include whether Life, Total & Permanent Disability (TPD) and Salary Continuance or Income Protection insurance is available, whether the fund provides ‘automatic acceptance’ insurance cover up to a certain level and/or whether you can tailor the insurance cover to suits your personal needs. The cost of cover will vary depending on whether the policy is a group life policy, or tailored insurance plan. Your age and the policy terms will also have an impact on the premium. In some situations if you change jobs or no longer have an employer contributing on your behalf you can lose your insurance cover.

When switching out of a superannuation fund that has existing insurances, generally the cover will be cancelled on exit from the fund. Sometimes replacement cover can be hard to get, so it is important to have the right insurance arrangements in place before a switch is made.

As you can see, there are many things that we consider when reviewing superannuation fund options. It’s important that adequate research and comparison is made to be able to make an informed decision on the most suitable option for your needs and objectives. The grass isn’t always greener on the other side so it pays to do the homework when assessing your superannuation options.