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Getting super wrong can be a very expensive mistake

Getting super wrong can be a very expensive mistake

One of the biggest decisions Australians must make with their superannuation is whether to invest their retirement savings through a for-profit or a not-for-profit fund.

For-profit funds, also known as retail funds, are owned by banks and other financial institutions. Not-for-profit funds, also known as industry super and public offer funds, are owned by their members.

Some Australians base their decision on sentiment. They might choose a retail fund because they want to be loyal to the bank they’ve used for years; or they might choose a not-for-profit fund because it better matches their values.

Other Australians, though, ignore sentiment and base their decision solely on the numbers – in other words, they choose the fund they believe will deliver them the best returns.

Industry funds have outperformed retail funds

According to research by Industry Super Australia (ISA), which represents 15 of Australia’s not-for-profit funds, industry funds have significantly outperformed retail funds over the long term, partly because not-for-profit funds tend to charge lower fees on average.

The research found that, over the 15 years to 30 June 2018, the average industry super fund delivered a net benefit of $156,409, while the average retail fund delivered a net benefit of $109,136 – a difference of $47,273.

This study was based on a series of assumptions, including:

  • Initial starting balance of $50,000
  • Initial salary of $50,000
  • Salary increase of 3.5 per cent per year
  • Balanced investment option

To look at a specific example, here’s how Energy Super (a member of ISA) performed compared to the average retail fund:

Energy Super

Do your research when choosing super funds

Australians should remember two things when comparing Australian super funds

First, averages conceal a lot of differences – it can’t be assumed that every not-for-profit fund outperformed every retail fund over those 15 years.

Second, past performance is no guarantee of future performance.

So if you’re wondering where to invest your super, it makes sense to weigh up the track record and service offering of numerous super funds, whether that be industry funds like Energy Super or retail funds owned by banks.

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This article was reviewed by Product Director Liron Nehmadi before it was published as part of RateCity's Fact Check process.

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