Compare superannuation funds in Australia

The long-forecast increase of the Super Guarantee (SG) from 9.5% to 10% of every eligible employee’s base salary has finally arrived. Additional SG increases are forecast each year up until 2027, where the SG should reach 12%.

While these SG increases are intended to help Australians save for a more comfortable retirement in the future, some employers are understood to be taking the extra 0.5% out of their employees’ take-home pay, rather than footing the bill themselves. Depending on your contract, and the nature of your employment, you may want to check your upcoming payslips to find out if you’ll need to recalculate your household budget.

The start of a new financial year also means that it’s tax time (remember, personal super contributions may be tax deductible), which can offer a convenient opportunity to take a good look at the state of your personal finances. While you’re conducting your financial health check, you could consider comparing super funds, to work out whether you’re getting value out of your current fund, or if switching to a different fund could better suit your needs.

Updated by Mark Bristow on 6 July 2021

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. This is known as the ‘superannuation guarantee’ or SG. Employers must make SG contributions into your super account at least once every three months. 

You qualify for the superannuation guarantee if you are over the age of 18, earn $450 or more before income tax each calendar month, or work 30 hours or more a week. 

This applies to full-time and part-time employees, and some casual employees. It also includes temporary residents to Australia. 

The super guarantee contribution rate is scheduled to increase every year, starting 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. However, these increases to the super guarantee rate could be delayed, depending on Australia's economic situation. 

You may choose to pay extra money into your super fund, on top of what your employer is required to pay. This could include one-time payments, or a regular 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.

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

Once you reach a certain age, you can start accessing money from your super fund as an income stream. This can help pay for your retirement lifestyle, reducing your reliance on the age pension.

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.

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)

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.

Superannuation is meant to fund your retirement. Apart from a few exceptions, you can only access your superannuation:

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

However, you may be able to access your superannuation early in some special 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 six types of superannuation funds:

Most super funds are accumulation funds. When you retire, the fund will pay you whatever superannuation you saved up during your working life.

Some corporate or public sector super funds are defined-benefit funds, though most are closed to new members. When you retire as an eligible employee, you’ll receive payment based on a formula. For example, you might receive ongoing retirement income calculated as a percentage of your final salary. You might instead receive a lump sum calculated on the number of years you spent with your employer.

Australians have access to hundreds of superannuation funds and tens of thousands of investment options. It’s important to do your research to find the best super fund and best investment option for you. Choosing the wrong super fund or investment option can be costly.

There are five main ways to compare superannuation funds:

You may prefer to pay lower fees than higher fees when it comes to your superannuation. However, a fund with higher fees might still offer better value than one with lower fees.

These fees may include:

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

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
• How much of your super that would be going to each asset class

You may also want to research how each fund's investment 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.

Super funds commonly offer three different types of insurance:

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

If you’re interested in a super fund with insurance, consider investigating the premiums and conditions.

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.

The best superannuation fund is the one you believe will offer you the best value. Each person will have their own definition of ‘best’, depending on what they prefer.

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 makes for the best super fund.

Looking at a super fund’s investment performance can be a useful comparison benchmark in some cases. For example, you could compare your current fund’s recent performance to another fund’s over the same period. 

However, just because a super fund has performed well over the past few years, that doesn’t guarantee it will be the best super fund for your financial situation. Past performance is not a reliable indicator of future performance. 

It’s important to consider the fees you may need to pay, as this could reduce the overall value offered by the fund. Additionally, a high-performance super fund may not offer the features and benefits that you’re interested in, such as ethical investing or access to insurance. 

Performance-driven super funds are more likely to offer active management of the fund’s investments, possibly with the help of professional fund managers. This could mean paying extra fees, such as admin fees, advice fees, and investment management fees. 

Some super funds also charge performance fees when the fund reaches a certain target. These fees may be calculated as a percentage of the investment returns in excess of the target. While these fees may be capped at an upper percentage limit, it’s still an extra cost.

It’s also important to keep in mind that if a super fund performs significantly better than its competition, you could still find yourself financially better off, even taking the performance fees into account.  

Identifying the cheapest superannuation fund in Australia is difficult, for two reasons.

First, there are many different types of fees. The same super fund might charge different fees to different members, depending on each member’s balance, activity, investment preferences and insurance preferences. The fees might also differ from person to person. So an apples-for-apples comparison may not always be possible.

Second, there are many different super funds, which may change their fees at any time. Even if you could make an apples-for-apples comparison to find the cheapest super fund, the cheapest fund might change regularly.

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

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.

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.