You could argue choosing a superannuation fund is a bit like dating. Choose wisely and you can look forward to a long happy life when you retire. Make a poor choice by “playing the field”, and you could suffer the consequences for decades, writes Victoria Kent.
But at a time when we’ve never had so much choice, how do we know when to swipe right on a super fund? Here are five things to look out for when considering making the switch.
1. Fees v fund performance
All superannuation funds charge fees (some less than others), which can vary between funds. Generally, lower fees are desirable since high costs can erode even the healthiest super balance over time.
However, fees are rarely “like-for-like” and easy to compare, nor are they the only factor to consider when choosing a fund, but if you weigh up fees and costs against the fund’s performance over time, it can help with choosing which super fund is right for you.
Check out a super fund’s product disclosure statement to get a handle on their fees and costs – it really pays to read the fine print.
2. Your risk appetite
Your appetite for risk may or may not be the same as your appetite for stinky French cheeses. Your risk appetite is made up of how much risk you can tolerate or are comfortable with given your lifespan and earning potential.
For example, a higher-risk investment strategy (a portfolio of higher-volatility assets like stocks) is typically better suited to someone with a longer investment horizon. If you are a young person with your entire career ahead of you, your risk appetite will be very different from someone who is about to retire.
Look at your super fund’s investment options and select one which best matches your risk tolerance and life stage.
3. Know what you are invested in
Do you buy free-range eggs? Or “Thank You” products? We all know about the power of conscious consumerism, but do you realise you have the power to be a conscious investor, too? This means you have the power to financially support (or not support) companies that reflect your values.
It makes a lot of sense to align your investments with the future you want to live in and retire into.
Ask yourself: does my current super fund reflect my beliefs?
Once you’ve pondered the question, investigate whether the fund:
- measures and reports on its sustainability contribution;
- is transparent – you know what you’re investing in and why; and,
- participates in “greenwashing”*
*Greenwashing is a form of deceptive, misleading marketing, which attempts to make a company appear more environmentally friendly than it really is.
Oh, and don’t worry about having to make a sacrifice financially to invest sustainably – you can achieve positive returns and positive impact at the same time. Sustainable investing isn’t charitable, it’s win-win.
4. Accessibility and usability
All superannuation funds essentially offer the similar financial benefits. So, one differentiator that can give them a competitive advantage is a unique customer experience, underpinned by a technology platform. Unfortunately, not all super funds have this, with some very much still in the dark ages of paper-based forms and once-yearly communications.
If you want to view your super balance with the same ease as checking your bank balance, look for a super fund which:
- has an easy to use online platform;
- streamlined onboarding process; and,
- options for contact that don’t involve a transistor radio.
5. Insurance
Not all super funds offer insurance, but many do. The important thing to ask yourself is: do I need this? What might suit my current or future lifestyle and needs? Giving it some thought is worthwhile since your insurance premiums (essentially fees) will get deducted from your super balance if you elect to have it.
A benefit of having your insurance through a super fund is they generally offer cheaper premiums than you could individually negotiate directly with insurance companies. So, it can make a lot of sense, but make sure you know what you are covered for and at what cost. If you’re a member of multiple super funds, you may have excess default coverage and could be paying multiple insurance premiums (fees).
Half the battle is simply understanding the different types of insurance and what all the terms mean.
Another thing to look for is whether you have been lumped in a standard (occupation category) premium rate. A modern, customer-focused fund should offer the option to answer a couple of simple questions to determine if you might fit into a different occupation category, which can often attract lower premium rates. This could save you a lot of money in the long term.
To see the effect of fees and rates of return on your super balance over time, have a play with this nifty balance calculator on the MoneySmart website – thanks, government!
Superannuation is complex and constantly changing, just like your financial circumstances, so it’s not something you can “set and forget”. It’s your money, so keep an eye on it. No, you can’t spend the money now, but it’s still yours. Check in now and then to see if your employer is contributing correctly, and to see if you’re still happy with your investment mix – perhaps your risk appetite has changed over time.
Happy investing! And remember, like Captain Planet says: “The power is yours.”
Victoria Kent is a senior investment specialist at Elevate Super.
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