The Australian government launched a new super fund comparison tool eight weeks ago which makes it easier than ever to find the best super fund to suit your needs.
And I certainly got a wake up call when I tried it.
I am with Commonwealth Essential Super – and I discovered I could be missing out on around $400,000 by being with a super fund that has high fees and low returns.
I am now thinking about changing my super fund to Aware Super, which came out best in my comparison.
The super fund comparison tool lets you know the fees that you will pay, the returns members have gained, and how those results compare to other funds.
From September this year, the YourSuper tool will also indicate whether the fund has passed or failed a basic performance test. It’s causing huge angst among the funds – for the very good reason that they hate being compared.
A basic performance test measures the effectiveness of how a fund has implemented its strategy in relation to the Your Future, Your Super (YFYS) government reforms announced in the 2020-21 budget.
Performance is generally measured over seven or eight years.
A fund will pass the test, provided the return is at least 0.5% after administration and advice fees are taken out.
A pretty low bar considering you can earn over one per cent in a term deposit.
If the fund fails the performance test then the fund must send its members a notice via regular mail starting with the words:
“Your superannuation product has performed poorly. You should consider moving your money into a different fund.”
If the fund fails two years running, it will not be allowed to accept new members.
So how does the YourSuper tool work?
You can simply go onto the ATO website and use their calculator.
The calculator lists the different funds alongside their investment performance, annual fee, the six-year net return, and a checkbox so you can select the funds that you want to compare.
You can compare up to four funds at any given time. It will give you, in table form, information on the investment performance, the past six-year net return, past five-year net return, past three-year net return, the total annual fee, the investment strategy, and whether or not it is a restricted fund. A restricted fund is only open to certain employees, whereas an open fund accepts any new members.
We’ve compared the funds based on an initial investment at the age of 30 of $50,000, with no additional contributions until withdrawal at the age of 65.
If you invested in the Aware Super superannuation fee, you would pay annual fees of $492, with an average three-year return of 7.74%. If you started investing at 30, your balance would be $679,460 at the age of 65.
OneSuper’s annual fee is $465, with a three-year return of 7.51%. At the age of 65, your balance would be $630,492.
Commonwealth Essential Super’s fees annual fees range from $466-$496. The three-year return varies greatly from 4.22%-7.7%.
Assuming a return of 4.22%, when you retired you would have $212,450. If you were lucky enough to get a return of 7.7% then your balance would be $670,686.
First Super has the highest fees at $577 annually, however, this is offset with a three-year investment return of 6.25%. When you turned 65, your balance would be $417,333.
Although the calculator allows you to compare the super fund’s return over certain periods and links you to each super fund, it does not perform the calculations for you. You will need to take your super balance and do the calculations yourself, which is a pitfall of the tool.
The ATO’s YourSuper tool does not consider future deposits into your superannuation fund. It assumes your balance remains the same.
RateCity has a much better comparison tool. Their comparison tool gives you the option to select the performance type and a super balance range.
The performance type is broken down into categories including balanced, high growth, conservative balance, secure, diversified, growth, Aus shares, international shares, capital stable, property, and cash.
You can also select a range of balances such as $0-$50,000, $50-$100,000, $100,000-$250,000 or more than $250,000.
While RateCity does not allow you to view the information in a table format, it gives more detailed information.
You can see the admin fee reflected as a percentage and a dollar amount, the indirect cost ratio percentage, exit and switching fees, and the investment fee percentage. It does not provide 3, 5, and 6-year comparisons, however, it does show you a line graph of the fund’s returns over the last five years, and the financial year-to-date return.
In short, the Your Super tool is easy to understand from a visual perspective however it does not allow you to assess the fund based on the balance of your fund, and you still need to perform the calculations yourself, which could be confusing.
The ability to compare funds could help you make decisions that will improve your long-term financial position.
For example, William is 30 and earns $80,000 a year. He starts with a balance of $50,000. His current super fund charges him 2% in annual fees. If he retired at 65, his balance would be $479,953 based on an annual return of 7%. If he switched to a fund with similar performance, but fees that were even 1% lower, his balance, when he retired, would be $600,205. That’s a massive difference of $120,252.
Choosing a super fund with fees that are lower by even just $1,000 a year can add up over time and make a huge difference to your lifestyle in retirement. It’s in your best interests to use a fund comparison tool to compare percentages and then calculate how much money you could have when you retire.
If you are thinking about changing your super fund, you should get financial advice to find out what’s right for you.
All values are correct at August, 2021.