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Time to change your super? Quite possibly…

Time to change your super? Quite possibly…

Here’s a scary stat: making the wrong choice with your superannuation could cost you more than $100,000 in retirement savings.

That’s the finding from new RateCity research into superannuation, which compares 40-year performance scenarios based on different fees and investment options.

We know super is hard. There are so many variables to get your head around. So how do you know which is the best fund and the best investment option for you?

To help you out, we’ve used the ASIC superannuation calculator to research different scenarios.

Industry funds v retail funds

Industry super funds are not-for-profit funds, while retail funds are for-profit funds. Industry funds have a higher customer satisfaction rating (62.1% v 55.7%), according to a new report from Roy Morgan Research.

Those small fees can make a big difference

First, we’re going to compare the impact of fees, ranging from low through to high.

We’re going to make a few assumptions about you:

  • You’re 27 years old
  • You’re earning $75,000 per year (and will for the rest of your career)
  • You’re planning to work until you’re 67 (which will become the official pension qualifying age in 2023)

We’re also going to make a few assumptions about your super:

  • You’re in a ‘balanced’ fund
  • It has an investment return of 4.8% p.a. (before taxes and fees)
  • It has tax on earning of 6.5% p.a.
  • It has investment fees of 0.5% p.a.

Based on those assumptions, you’ll make $239,161 in superannuation between ages 27 and 67 if you choose the high-fee fund and $347,430 if you choose the low-fee fund.

That’s a difference of $108,269.

Fee levelContribution feeAdmin fees (p.a.)Indirect cost ratio (p.a.)Final total
Low0%$500%$347,430
Low-medium0%$500.3%$329,563
Medium0%$500.6%$312,842
Medium-high2%$01.3%$273,833
High4%$02%$239,161

How much do I need to retire?

To live a modest lifestyle, singles need $27,648 per year and couples need $39,775. To live a comfortable lifestyle, singles need $43,317 and couples need $60,977.

These numbers come from the ‘ASFA Retirement Standard’ for Australians aged about 65. Slightly lower numbers apply for those aged about 85.

Different investment options can also make a big difference

Now, we’re going to have a look at how different investment options can affect your nest egg.

Again, we’re going to assume you’re 27, you’re going to work until 67 and your salary is $75,000.

We’re also going to make these assumptions about your super:

  • You’re paying ‘medium’ fees
  • Your contribution fee is 0%
  • Your admin fees are $50 p.a.
  • Your indirect cost ratio is 0.6% p.a.

Based on those assumptions, you’ll make $225,132 if you choose the cash investment option and $339,074 if you choose the high-growth option – a difference of $113,942.

Investment optionInvestment return (p.a.)Tax on earning (p.a.)Investment fees (p.a.)Final total
High-growth5.3%4.1%0.7%$339,074
Growth5%5.8%0.6%$320,920
Balanced4.8%6.5%0.5%$312,842
Moderate4.4%8.3%0.4%$291,901
Conservative3.8%10.6%0.3%$263,588
Cash2.7%15%0.05%$225,132

Why wouldn’t everyone choose high-growth?

Historical averages show that high-growth investment options tend to produce better long-term returns than conservative options.

However, they also experience more volatility: they might post big gains one year and big losses the next.

Conservative options, by contrast, are less volatile, and experience both smaller gains and smaller losses.

Some people might choose conservative options because they want to reduce their risk. Others might start with growth options but then go conservative as they near retirement, to avoid losing a big chunk of super just before leaving the workforce.

How to change your super

Now that you’ve seen all those numbers, do you feel like changing your super?

If so, we’ve got you covered.

Changing your superannuation fund is simple. You can do it online through your MyGov account. Or you can fill in a rollover form and send it either to the fund you’re about to leave or the fund you’re about to join.

Whether you choose the MyGov option or the rollover form option, you’ll also have to notify your employer and complete a standard choice form.

Of course, you might want to stay with your current super fund and simply change your investment option.

Again, that is a simple process. Many funds will allow you to change options over the internet. If yours doesn’t, contact your fund and ask how to proceed.

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Fact Checked -

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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Learn more about superannuation

What fees do superannuation funds charge?

Superannuation funds can charge a range of fees, including:

  • Activity-based fees – for specific, irregular services, such as splitting an account after a divorce
  • Administration fees – to cover the cost of managing your account
  • Advice fees – for personal investment advice
  • Buy/sell spread fees – when you make contributions, switches and withdrawals
  • Exit fees – when you close your account
  • Investment fees – to cover the cost of managing your investments
  • Switching fees – when you choose a new investment option within the same fund

How do I choose the right superannuation fund?

Different superannuation funds charge different fees, offer different insurances, offer different investment options and have different performance histories.

So you need to ask yourself these four questions when comparing superannuation funds:

  • How many fees would I have to pay and what would they cost?
  • What insurances are available and how much would they cost?
  • What investment options does it offer? How would they match my risk profile and financial needs?
  • How have these investment options performed historically?

How do you create a superannuation account?

Before you create a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).

How do you set up superannuation?

Before you set up a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).