It’s fairly common for Aussies in the workforce to neglect thinking about their retirement funds until the later stages of their career. But doing so could potentially cost you hundreds of thousands of dollars by the time you retire.
If you are one of the many Australians who has kept their superannuation fund from their first casual job, there’s a good chance that upon subsequent employment you’ve either:
- kept the same fund out of convenience, or;
- opened an additional super fund(s) – likely another default fund – also out of convenience.
Maybe you’ve since seen how easy it is to consolidate your accumulated funds using your myGov account and are feeling a sense of achievement from doing so, with the knowledge that you’ll no longer be paying all of those unnecessary fees.
While this is an excellent first step, and means you aren’t one of the 4.4 million people across the country who are holding 6 million super accounts, there’s still a number of other things to consider.
Despite too often being disregarded, one of the most important factors of your super fund is the investment return that it makes, known as its performance. Even a slight variation in performance has the potential to significantly impact your super balance over the life of your career. It could essentially mean the difference between retiring with a sense of financial insecurity and retiring comfortably.
How do I compare super fund performance?
As recommended by MoneySmart, it’s a good idea to compare the investment performance of different funds over a period of at least five years.
RateCity’s superannuation rate table allows you to compare performance figures of different super funds by listing their annualised rolling returns over the past five years.
When doing your research, it’s important to ensure you’re comparing apples with apples in order to make a fair comparison. This means comparing super funds of the same type, as well as the same risk profile.
The reason this is so important is because there can be many factors that determine fee variations between different fund types.
For example, funds that are considered to have a higher risk profile may charge higher fees than more conservative funds, as it can cost more to have money invested in higher growth assets. Similarly, ethical funds can have higher fees, as it can be an additional cost to screen ethical companies.
However, lower fees and strong performance don’t necessarily go hand in hand.
Danielle lands her first full time job at age 25. When she receives her onboarding forms, she uses the opportunity to assess her superannuation options. It’s particularly important to her that she chooses an ethical super fund that prioritises environmental sustainability.
After a thorough comparison focused on investment options, Danielle narrows down her search to two suitable funds. She has heard a lot of talk about fees and how they can really add up over time, but notes that both funds have the same annual fees.
Danielle has been doing her due diligence, and understands that to make a comprehensive comparison she should consider not only the investment options and fees charged, but also the funds’ performance.
Ultimately, Danielle discovers that one of the two funds has performance figures from the past five years that are 1 percentage point higher than the other, so she makes the educated decision to join that fund.
|Age||25 years||25 years|
|Super contribution||9.5% of salary||9.5% of salary|
|Fees||1.5% of balance||1.5% of balance|
|Super balance at age 65||$221,776||$268,664|
Source: RateCity.com.au, MoneySmart Superannuation Calculator. Notes: Assumes a starting super balance of $0. Assumes no changes to income during working life for the sake of calculation.
Note that past performance is not always a reliable indicator of future outcomes.