Compare Superannuation Funds in Australia

As Australia reportedly leaves its first recession in decades amidst housing prices beginning to grow once more, many Aussies may be nervous about how their super funds have performed in 2020. Thankfully, recent reports found that industry-wide returns on superannuation funds have bounced back to positive territory, following negative returns caused by the early impacts of the Covid-19 pandemic.

However, as a result of the Covid-19 pandemic, early withdrawals from superannuation funds is set to surpass $36 billion, according to the latest Australian Prudential Regulation Authority (APRA) data.

While early super withdrawal has slowed to a weekly pace of just 0.6 per cent since mid-October, the early release of super scheme has made a significant dent in the balances of many everyday Australians. For those who have had to dip into their super, it may be worth considering if salary sacrificing could help boost your lost funds.

One of the other biggest influences on your superannuation fund for the future will have been a new announcement to come out of the Federal Budget. New super accounts no longer being “automatically created” for workers when they start new jobs from July 2021. This will hopefully see fewer Aussies being charged unnecessary fees across multiple funds, some of which they may not even know exist.

Updated by Alex Ritchie on December 3, 2020

Your employer is responsible for paying your superannuation.

Your annual superannuation must be at least 9.5 per cent of your ordinary time earnings. For example, if you earn $100,000 (before tax), your employer must pay you at least $9,500 in super per financial year; a policy known as the ‘superannuation guarantee’ or SG. Employers must make SG contributions into your super account at least once every three months. 

If you are over the age of 18, reach the income threshold of $450 or more before income tax each calendar month, or work 30 hours or more a week you qualify for the superannuation guarantee. This applies to full-time and part-time employees, and some casual employees. It also includes temporary residents to Australia. 

This super guarantee contribution rate is scheduled to increase at annual intervals in from mid-2021. Each year, the SG rate should increase by 0.5 percent, until superannuation guarantee contributions reach 12 per cent in mid-2025. That said, it's possible that these increases to the super guarantee rate could be delayed, depending on Australia's economic situation. 

As well as employer contributions, you may also choose to make extra personal contributions towards your super, such as through a salary sacrifice arrangement with your employer. Some of these extra super contributions may be tax deductible - check with the Australian Taxation Office (ATO) for more details, including information on concessional contributions cap amounts and non-concessional contributions.

Many super funds invest your super contributions into an investment portfolio, to help grow your wealth at a faster rate than you’d likely earn in interest simply by depositing this money in a savings account or term deposit. Different super funds use different investment strategies, which may mean different returns on your investments.

Once you reach a certain age, you can start your transition to retirement by accessing money from your super fund as an income stream to help pay for your lifestyle, reducing your reliance on any age pension you may be eligible for.

Which superannuation fund should you choose?

Put simply, you should choose whatever superannuation fund you believe is the best.

Each person will have their own definition of ‘best’, depending on their preferences. For example, you may want to look for:

• The fund that has delivered the highest net returns over the past five years
• The fund that has earned the highest approval ratings on online review sites
• The fund that has the most appealing investment options

Those are just examples – you might have your own definition of what constitutes the best super fund.

The key is to do your research, compare your options and then choose the super fund you believe is the best.

What types of superannuation are available?

There are six types of superannuation funds:

Fund	Description	Availability
Retail super funds	Run by for-profit institutions such as banks and financial services companies	Everyone
Industry super funds	Run by not-for-profit institutions	Some industry funds restrict membership to certain industries
Public sector super funds	Created for federal and state government departments	Public servants
Corporate super funds	Run by companies	Employees of those companies
Eligible rollover super funds	Special holding accounts; can’t receive contributions from employers	For lost members or inactive members with low balances
Self-managed super funds	SMSFs are for Australians who want to manage their own investments	Everyone

Those six types of superannuation funds come in two different flavours:

• Accumulation funds 
• Defined-benefits funds

Most Australians are in accumulation funds. When you retire, the fund will pay you whatever superannuation you accumulated during your working life.

Other Australians are in defined-benefit funds. When you retire as an eligible employee, you’ll receive payment based on a formula. For example, you might receive an ongoing payment as retirement income calculated as a percentage of your final salary, or a lump sum calculated on the number of years you spent with your employer. Defined-benefit funds tend to be:

• Used only by corporate or public sector super funds
• Closed to new members

Few Australians now have the chance to register with a defined-benefit scheme, so you will most likely use an accumulation scheme.

As a result, there are really only two questions you need to ask when comparing super:

1. Do I want to manage how my superannuation is invested, or do I want professionals to manage it for me?
2. If I want professionals to manage my superannuation, do I want to register with a retail fund, an industry fund, a public sector fund or a corporate fund?

A self-managed super fund (SMSF) is an arrangement where you look after your retirement savings yourself. This can include investing your superannuation into a property portfolio. However, setting up and managing an SMSF can be complex, and there are many rules and regulations to consider - contact the Australian Taxation Office (ATO) to learn more.

According to a 2019 report from ASIC, Australia’s financial services regulator, you may want to think twice about getting an SMSF if you:

• Have a superannuation balance of less than $500,000
• Want a simple super solution
• Don’t want to manage your own investments
• Don’t have enough time to manage your own investments
• Don’t have enough skill to manage your own investments
• Have a low level of financial literacy

If you don’t want to open a self-managed super fund, your next decision is what type of fund to choose – retail, industry, public sector or corporate.

You have a lot of choice when it comes to superannuation. There are about 190 different funds in Australia, although not all of these funds are open to everyone. So make sure you do your research and compare how different funds compare in terms of fees, investment options, investment performance, insurance options and customer service.

Superannuation is meant to fund your retirement. So, apart from a few exceptions, you can only access your superannuation  in your latter years:

• If you’re permanently retired, you can access your superannuation when you reach your ‘preservation age’, which is between 55 and 60, depending on when you were born.
• If you’re still working, you can access your superannuation when you turn 65

However, you may be able to access your superannuation early in some exceptional circumstances, such as:

• If you’ve suffered permanent or temporary incapacity
• If you’ve received commonwealth benefits for 26 continuous weeks but still can’t meet your immediate living expenses
• If you’re seriously ill and need to pay for medical treatment
• If you have a terminal condition and are likely to die within two years

There are five main ways to compare superannuation funds:

1. Fees

While you may prefer to pay lower fees than higher fees when it comes to your superannuation, it’s still possible that a fund with higher fees might offer better value than one with lower fees.

Super funds might charge several different fees, including:

• Administration fees
• Investment fees
• Advice fees
• Switching fees
• Buy-sell spread fees
• Activity-based fees
• Indirect costs
• Insurance premiums

2. Investment options

You may want to research the different investment options being offered with different super funds. You want to make sure you’re comfortable with:

• The amount of risk you would be taking
• The asset classes you would be investing in
• The proportion of your super that would be going to each asset class

3. Investment performance

While you’re researching each fund’s investment options, you may also want to research how those options have been performing, such as by looking at their net returns (i.e. after fees). Moneysmart suggests comparing the performance of different funds over the last five years.

4. Insurance options

If you’re interested in taking out insurance via a super fund, consider investigating the different insurance offers, including their premiums and conditions. Super funds commonly offer three different types of insurance:

• Life insurance
• Total and permanent disability insurance
• Income protection insurance

5. Customer service

You may also want to learn more about what sort of customer service you might receive from different super funds. This might involve comparing the promises made by funds in their marketing with the feedback left on online review sites.

Why should you compare superannuation?

Australians have access to hundreds of superannuation funds and tens of thousands of investment options, so it’s important you do your research so you can find the best super fund and best investment option for you.

Choosing the wrong super fund or investment option can be costly.

Imagine you worked from age 22 to 67 and earned an average salary of $75,000 the whole time. Your employers made a 9.5 per cent contribution to your super during this time under the super guarantee, and you made no additional superannuation payments.

According to the Moneysmart superannuation calculator, assuming your fund had a 0 per cent contribution fee and indirect cost ratio, a $74 annual admin fee, a 7.5 per cent investment return, 7 per cent tax on earnings, and 0.85 per cent investment fees, you would have $552,871 when you retire, having paid $140,427 in fees.

A small change to any of these assumptions could make a big difference to the final total available to you when you retire. For example, if you chose a different super fund in the above scenario that charged an annual admin fee of just $50, but had an indirect cost ratio of 0.6 per cent, you could end up retiring with $485,752, having paid $207,546 in fees over your working life.

It's important to not only compare the cost of different super funds, but the features and benefits they also provide. The best super fund for your financial situation may not be the same as for somebody else.

What features of superannuation should you look out for?

The five main features of superannuation are:

• Fees – Does the fund have a competitive fee structure?
• Investment options – Does the fund offer a suitable investment strategy and risk level?
• Investment performance – Does the fund have a strong record over the past five years?
• Insurance options – Does the fund have the right insurance products at a competitive price (assuming you want to take out insurance through your super)?
• Customer service – Does the fund make it easy for you to manage your super?

What are the benefits of superannuation?

There are two main benefits of superannuation:

• You build a nest egg for retirement
• You save and invest in a tax-effective structure (super is taxed at only 15 per cent)

What are the disadvantages of superannuation?

The main disadvantage of superannuation is that it is compulsory. So instead of getting access to your money today (in the form of a higher take-home salary), it gets locked away – potentially for decades.

The first thing you need to do is check that you can, indeed, choose a superannuation fund. Most income earners will be able to choose their own super fund, but some workers may not be able to do so if their job is covered by a certain industrial agreement.

It’s also possible you may not want to choose an alternative super fund. Why? Well, some Australians in certain jobs have access to special ‘defined-benefit’ funds, which may offer more generous terms than the standard ‘accumulation’ funds used by most Australians.

If you are in a situation where you are choosing a super fund, whether you are a part-time worker or small business owner, your aim should be to find the best super fund for your financial needs.

Once you’ve chosen what you believe is the best super fund for your situation, contact the institution or visit their website for more information. Joining a super fund is usually a straightforward task.

How do you find the best superannuation fund?

The best superannuation fund is the one you believe will offer you the best value. 

The definition of ‘best’ will differ from person to person. Moneysmart suggests looking for a super fund that offers:

• Performance
• Low Fees
• Insurance
• Investment options
• Services

What is the cheapest superannuation fund?

Identifying the cheapest superannuation fund in Australia is a challenging task for two reasons.

First, there are many different types of fees, including admin fees, investment fees, advice fees, switching fees, buy-sell spread fees, activity-based fees, indirect costs and insurance premiums. The same super fund might charge one set of fees to one member and a different set of fees to another member, depending on each member’s balance, activity, investment preferences and insurance preferences. The level of fees might also differ from person to person. So an apples-for-apples comparison may not always be possible.

Second, not only are there many different types of fees, there are also many different super funds. At any point in time, there’s a good chance that one of these funds could changed its fees. That means that even if you could make an apples-for-apples comparison to find the cheapest super fund, the identity of the cheapest fund might change regularly.

You apply for superannuation by filling out a standard choice form. You will need to provide:

• Personal details
• Information about your preferred super fund

Your employer will also need to fill out part of the form.

You don’t have to pay money to join a superannuation fund. However, the fund will charge you fees to manage your money, which will be taken out of your super balance.

Possible fees may include:

• Administration fees
• Investment fees
• Advice fees
• Switching fees
• Buy-sell spread fees
• Activity-based fees
• Indirect costs
• Insurance premiums

You can use RateCity to compare superannuation funds and superannuation products, including:

• Investment performance
• Fees
• Features
• SuperRatings awards

You can then use that information to choose what you believe is the best superannuation fund for your situation.

Using RateCity's tables, you can quickly compare the rates of return for various super funds over the past five years, as well as fees, features and benefits. Remembers that a super fund's past return rates do not guarantee that you'll enjoy similar rates of return in the future.