Ask An Adviser - What Things Do I Need To Consider When Choosing A Super Fund? (1)

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Ryan Scherini

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Hi Jimmy,

Thanks for your question to Adviser Ratings. It’s great to see someone who’s 28 taking an active interest in their superannuation and future self.

Superannuation is, for most people, their largest asset outside of their family home. For most, it’s an overwhelming process in which we generally allow our employer to choose our superannuation fund. There are some employers who do their research to make sure their employees are getting a great deal. Funds that are created from an employment relationship are captured under ‘MySuper’ legislation and are commonly referred to as ‘default’ arrangements. When an employee joins a new company and doesn’t specify an existing super fund, it will be the employers default fund that will be used for future contributions. The problem previously with this approach is it resulted in people having multiple funds which can be detrimental for their retirement goals. For example, the costs of insurance and multiple layers of administration fees can impact your final retirement balance. The Government has been working with the industry to make things easier for individuals, both to consolidate super via MyGov as well as avoiding the set-up of multiple funds via way of fund stapling (you can read more on this here).

There are some key criteria that I look at as an adviser when researching superannuation funds. I’ve highlighted what I consider to be some of the more important factors:

1. Check how many superannuation funds you have
2. Check what insurance coverage you may have within each fund
3. Check with your providers what costs are involved in running the fund
4. Beneficiaries
5. Investment options
6. Fund returns and track history

Background checks:

The first thing in my opinion, is to start at the beginning and understand what you’re trying to achieve and why. For example, are you looking for a cheap fund, better performing fund, greater choice/flexibility, ethical investment options – the list can be quite exhausting therefore, it’s important to engage a financial adviser, as we have the experience to help breakdown what’s important to you. Once you have a good understanding of what’s important to you, do some background checks. Firstly you can log into MyGov and via the ATO service you can check what existing superannuation funds you have. Only funds where your employer has linked your Tax File Number will generally be here. Depending on how many jobs/employers you’ve had, it may also be worthwhile backtracking and trying to work out who each employer might have paid into.

Once you have your list of funds, it is worth giving them each a call. Some simple questions to ask are:

1. What is the balance of my fund?
2. How much are the fees? (Generally broken down into administration, investment management and regulatory fees)
3. What am I invested into, what is the asset allocation of this investment option and where can I locate the performance of this option?
4. Do I have any insurance? If yes, what do I have, how much is the cover and what are the premiums?
5. Have I nominated any beneficiaries on my account?

Comparing funds:

There is a raft of comparison tools available on the market these days to help you make a decision on superannuation. One provider that I personally like using is Chant West, they have a methodology that they use to research and provide ratings for superannuation funds in Australia. You can locate their criteria here. In summary, they use a weighting process where investments are the largest contributor to rating, followed by member services, fees, insurance and the organisation. If you’ve followed the first step and done your background checks, you can check how Chant West rate each of your existing funds (click here for the page – and use the search bar to find your fund).

If your fund/s are receiving the 5 Apple rating, this is probably a good starting position. It may just be about diving a bit deeper and finding an outcome that better serves you.

-Check the fee differences

-Investment options, historical returns and asset allocation

When comparing fund returns, it’s important to know you’re comparing apples with apples. It’s becoming more common, especially in default superannuation funds which are under further pressure from performance tests, to alter their asset allocation in favour of more growth orientated assets to achieve better returns. Therefore, it’s important to ask each fund what their asset allocation is for each of the respective options. It may also be important to ask what allocation they have to asset classes such as property, infrastructure and alternative assets. This is because some funds will treat these as 100% growth assets (which are riskier assets), while other funds may allocate 50% growth and 50% defensive investments. Whilst I don’t want to comment on what is the right or wrong approach is, you should make sure you’re comfortable with the funds allocation and that it aligns to your risk appetite.

Fees are important, but if you’re operating in a Chant West 5 Apple fund, these are probably already quite competitive. So you may just want to overlay fees vs historical returns of the fund. You may be aware of the old saying ‘past returns are no guarantee of future returns’; this is true because nobody can predict the future. However, assuming the fund has been running for 10+ years and can show a track history of investing through difficult times such as the recent COVID crash or even the Global Financial Crisis (GFC), remembering that your investment strategy as a 28-year-old should be considering the longer term and you can’t retire or access this money for 30+ years, you can ride the ups and the downs of the market easier than say a 55-year-old where retirement is much closer.

Before rolling over or consolidating:

Once you have compared funds and selected a fund that you’re going to use moving forward. Prior to rolling over or consolidating, make sure you have done your research on insurance in the new fund. Consider if the new fund will require you to apply for insurance cover and undergo underwriting, which is a set of questions about your health. Prior to closing any existing funds which may hold insurance, it is important to ensure your destination fund is 100% set-up with the insurance cover you’re wanting. Typically, you may have Life, Total and Permanent Disability (TPD) and Salary Continuance or Income Protection with your fund. Are the amounts you have appropriate for your situation? As a 28-year-old, it really depends on what’s happening in your life, such as whether you have a spouse, children, debt, etc. Again, it may be important to reach out to a financial planner for assistance. Alternatively, a lot of super funds these days can provide intra-fund advice at low or no cost.

Where I see problems occur is where people close existing superannuation funds with insurance which had automatic/default cover (not subject to medical underwriting), only for the new fund to either not offer cover or decline cover due to pre-existing medical conditions. I’ve assisted many clients in claiming insurance within their existing funds they either weren’t aware they had due to default cover.

New fund:

Once you have joined your new fund, you would have now rolled all your existing funds into your new fund, selected an investment option that suits your risk appetite and you’ve hopefully considered your insurance needs. However, there are still some general house-keeping issues to clean up.

1. Ask your new fund for a choice of fund form. Provide this to your employer payroll/HR. This is so they know to pay your contributions to your new fund.
2. The above point is a good opportunity to review your contributions. Do you have the capacity to add a bit more to super each pay? Making smaller amounts regularly from a younger age can be more beneficial to you than larger amounts later in life. Doing this via salary sacrifice via your employer is also tax effective.
3. Most funds will let you set-up a beneficiary on application. However, this won’t be binding. A binding nomination is something that legally binds the trustee of your fund to pay your super and insurance benefits to your nominated beneficiary. Importantly, it needs to be a valid nomination. To be valid, you can nominate a spouse, child, financial dependent or interdependent individual/s. Where I see a lot of young people go wrong is nominating their parents or siblings. These generally aren’t valid nominations if you’re no longer living with them. It is also important to note that most binding nominations will only last 3 years, and you’ll need to complete a form and have it witnessed and sent into your fund for it to be accepted.
4. Ensure you have your online login (most super funds now have apps). After 2-3 months, check that your employer is depositing your contributions into your fund. Even though each payslip might show contributions being paid, an employer is only legally obligated to pay these as a minimum quarterly. A lot of companies do this more frequent than quarterly. However, it’s good housekeeping to check regularly and make sure you’re getting what you’re entitled to.

What I’ve provided you with in the above is some framework to assist you in making your own decisions. I would also stress that this isn’t a ‘set and forget’ approach. You should regularly review your super fund’s performance, fees, and other benefits, such as insurance, because they can change regularly. Another common mistake I see is when individuals leave employers who have provided great superannuation benefits such as no fees or discounted insurances. Whilst the fund might have been great for you as an employee, it may not be as great if the fees and insurance premiums significantly increase if you’re no longer an employee. 

Good luck with your decision-making Jimmy, I hope the above assists you. However, if you get stuck, please don’t hesitate to reach out to a financial adviser in your region, if you need further, personal advice. You can either utilise the Adviser Ratings or Financial Planning Association ‘Find an Adviser’ tool. It is always better to make sure you do this correctly, as it’s generally not possible to unwind a mistake (such as closing a fund with insurance).

While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.

Article by:

Ryan Scherini

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