"I want to switch superannuation funds, how do I find the best fund for me and what things do I need to look out for, I have no idea where to start?"
-Question from Janelle in Kingaroy, QLD
Top answer provided by:
Janelle – there are a few key elements in your question: I’ll detail them as I see them and then will try to address them to help you get to a position where you can make a choice that is in your best interests. The ‘advice’ will be general though, as I am not privy to your personal circumstances, your financial risk tolerance profile, nor your personal financial goals and objectives. To deal with those matters appropriately, you are advised that a consultation with a qualified, experienced financial planner would be required.
The key elements are –
‘the best fund for me’
‘things to look out for’ – and
‘where to start’
I’ll respond to the last element first, and that will lead us back through the others.
Setting goals and objectives:
The best place for you to start, is to understand and be able to clearly specify what it is you are wanting to achieve with your superannuation – and when I say ‘specific’, I mean that your objectives for your super need to be SMART (that is, Specific, Measurable, Attainable, Reasonable and Time-limited). It is no good saying ‘I want to earn as much as possible in my super account’ – because that is what you will achieve unless you set a specific goal. Better to say, ‘I want to have $500,000 in my super account before I retire…’.
Next you would want to identify how that goal amount is able to be achieved. To do that you will need the following information: how much is currently in my super account; how is that invested – and what are the anticipated returns to be achieved in the account; the rate at which your contributions to super are likely to accumulate during the remainder of your working life – and then set milestones as to when certain account balance amounts will be achieved. It is probably a good idea to set three- to five-year milestones. These then give you something to compare with that original objective – and will alert you to any need to revise either the goal amount, or the expectation as to how to get there. (In terms of super contributions, remember that there are a number of ways in which contributions can be made to a super account – not just the 10% to 12.5% payable by an employer.)
Consideration of your personal circumstances and prospects for continuing contributions to your super account, together with confidence in the sustainability of the long-term earnings rate of your chosen fund will confirm whether the objective is attainable. It will also guide you as to whether it is reasonable (or at least, ‘was’ reasonable) in the first place.
The time-limitation on this process may be controllable by you but should be considered to be your preferred retirement age in years from now.
Next, we’ll look at those ‘things to look out for’.
Features I need from a Super account:
The short answer to this is – any legally established and well-governed, compliantly regulated super account that will achieve the above objectives will do it for you. At this point, I would just note that the fees of a fund, whilst an important consideration, are effectively, secondary to the net returns from the fund after taking into account investment performance and fees.
To get an independent view of how various funds have performed in recent times, this government website lists (and rates) super funds based on certain characteristics. Things that you might look out for though, include –
- Are the investment choices appropriate to your investor risk threshold?
- How accessible is information – and advice – about the fund and your account?
- Are there any restrictions on contributions being made to the account?
- Can beneficiaries be nominated to suit your estate planning considerations?
- Are the insurance offerings appropriate to your needs?
- Are spouse accounts available – under normal member terms and conditions?
The best fund for you:
As you may have deduced by now, there is a lot to work through when comparing different superannuation funds. Whilst there is talk of further amalgamations in the industry (thus reducing the number of funds you will need to research to make your decision), there are still many funds out there.
One argument that needs to be quashed at the outset, is that the level of fees is not the only matter by which to judge funds: as with many ‘purchases’ we make, the lower the cost, often it is a case of fewer (or even, inferior) services. The matter that should be of most interest, is the sustainable anticipated net performance of the fund (that is, earnings, or growth of the fund through increase in the value of the assets in which it is invested together with interest, dividends and the like), from which fees are then deducted: so if a superannuation fund generates $1,000 ‘earnings/ growth’ and has fees of $100, its net performance is $900; and if a competitor has fees of $150, but generates earnings/ growth of $1,200, your account would grow by $1,050 – or $150 more than the fund with the lower fee).
Summing up this section then, it is suggested that the best fund for you to consider if you still believe you should switch, is one that you are comfortable with the way it is run, the clarity of communications and its ability to perform at a level that will see you able to achieve your SMART objectives.
The government’s MoneySmart website deals with aspects of the question you have raised: it suggests that relatively common reasons that people seek to make a switch, include to –
-invest in a fund with better services and features
-leave a fund that has been performing poorly
-leave a corporate fund after leaving your job
Other reasons that we hear, include –
-fees are cheaper elsewhere
-guidance and advice not easily available
-insurance conditions are too restrictive
MoneySmart also cautions - Don't rush to change super funds if:
-your fund performed poorly in single year — judge its performance over five years or more;
-you're chasing last year's top-performing fund — it may not perform as well in coming years; and…
REMEMBER to check your insurance cover before you change.
You may also like to browse our website, particularly the following Pages, for more information about superannuation funds and accounts:
Articles in our Blog regarding contributions, beneficiaries, insurances etc
Wishing you well in your deliberation on the matter – and please feel free to Contact Us if you would like professional advice on this.
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.