If you have seen the Industry fund television advertisements you would be familiar with their catch phrase, which states that ‘low fees can make a life time of difference’ and they are not wrong, but they are only half right. In fact most people start by comparing fees and returns when appraising the performance of their super fund. So what features should you compare and what do you get for what you pay?
1. Fees
Fees can vary depending on the type of fund you are with. An important fact is to consider the fees you pay in relation to the benefits you receive from your fund. A recent independent study (i.) revealed what the average member is charged in account fees, for the following account balances. If you are paying high fees and receiving no service and you are not happy with your returns you should investigate your options.
For members with a balance of $50,000 – the industry average fee is 1.67%*
For members with a balance of $100,000 – the industry average fee is 1.62%*
*Fees are inclusive of the average member advice fee for corporate superannuation funds – 0.40%
2. Insurance Cover
If you joined your employer’s super fund, you should be receiving a group insurance benefit, without the need for a medical test, at a competitive group rate. In some cases your employer will pay for part or all of the insurance cover. If you join a super fund as an individual rather than as an employee of the company fund, you may not be able to access the competitive wholesale rates for insurance before undertaking a medical test to receive cover and you may be rejected cover, if you have any pre-existing medical conditions.
3. Returns
How your fund has performed, is ultimately the most important consideration. For people approaching retirement, or for those that are in individual retail funds or self managed super funds, returns should be scrutinised more closely than for those in employer super funds. (Also referred to as industry and corporate funds) In addition, you can compare your funds returns by using an independent rating company such as Rainmaker or Chant West. Rainmaker’s ‘selecting super’ benchmark indices (ii.) are a great way of checking your funds returns against the rest of the industry. These indices calculate the returns of over 200 super funds from a combination of industry, retail and corporate funds and the index gives you an indication of the performance of the average balanced super fund option.
There are 3 types of super funds, which you can invest in
Corporate Funds (used by your employer) – Run by banks and insurance companies. They provide good benefits, customized insurance and fees, and in some cases these benefits are fully or partly funded by the employer. Corporate funds offer multi manager investment choices with slightly higher fees than their industry fund counterparts. They also offer ancillary benefits such as discounted health fund fees and gym memberships.
Industry Funds (used by your employer) – Industry funds have their origin in the union movement. They offer a low cost service, with slightly more investment choices than an average corporate fund. Where they lack is in providing very limited insurance cover, they also invest in unlisted property and infrastructure assets which often overvalues their performance and increase the level of risk compared to their corporate and individual fund counterparts.
Individual retail super funds or SMSF’s – They offer the most investment and insurance choice. Typically these funds are managed by a financial planner, who can customise these funds to suit the individual. Compared to their corporate and industry fund counterparts, individual funds will not provide you with benefits such as lower fees and automatic insurance. However it is important to note, that these pooled benefits come at a cost to an individual’s objectives, where investments and insurance choices are structured for the benefit of all the members of corporate and industry super funds, but not to an individual’s specific needs or objectives.