The cost of being in a dud super fund

Being in a dud super fund could leave you $225,000 worse off at retirement. Here are some tips on what to do if you’re in a dud fund.

We trust super funds to manage our nest egg in a way that maximises our money for retirement. But it seems some funds are still shortchanging members through high fees, poor returns or a combination of both.

In August, super fund regulator APRA released the results of its second annual MySuper performance test. It saw APRA assess 69 MySuper products (those with at least five years of performance history) against benchmarks for investment returns, and fees and costs.

This year, five MySuper products failed to meet APRA’s benchmarks – down from 13 in 2021. Four of the five MySuper products that failed APRA’s test this year also failed in 2021. As a result, these funds are now closed to new members.

On a positive note, that means that 64 funds passed the test. “Almost 96% of MySuper superannuation members are now in a performing MySuper product, equating to 13.1 million member accounts,” said APRA Member Margaret Cole.

Underperforming super funds on APRA’s list

So, which are the dud super funds? APRA doesn’t hesitate to name names. The table below lists the funds that failed APRA’s performance test in 2022. It’s worth noting that the Westpac Group Plan MySuper is Westpac Group’s chosen super fund for its employees, so membership is restricted.

Underperforming super funds 2022

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Source: ATO YourSuper comparison tool

Are these the only dud super funds?

APRA’s performance test only applies to MySuper products – a no-frills style of account introduced in 2012. This leaves hundreds of non-MySuper accounts free from scrutiny.

That’s not to say these funds aren’t being watched.

Stockspot recently released its Fat Cat Funds Report 2022, which analysed over 500 superannuation options, comparing the best and worst performing super funds in each investment category (moderate, balanced, growth and aggressive growth).

The funds were assessed on how they performed after fees and compared to other super investment options of similar risk over five years.

Across the popular ‘balanced’ investment option, Stockspot found Qantas Super took out the top two spots for ‘fit cat’ funds, with returns over the past five years averaging 6.10% annually. Qantas funds are only available to Qantas Group employees, however, other high performers included AustralianSuper, IOOF and Active Super.

5 best-performing balanced ‘fit cat’ funds

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Source: Stockspot Fat Cat Funds Report 2022

At the other end of the spectrum, Stockspot’s so-called ‘fat cat’ funds could barely muster annual returns over 2.0% in the last five years, less than half the gains notched up by the leading fit cat funds.

5 worst-performing balanced ‘fat cat’ funds

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Source: Stockspot Fat Cat Funds Report 2022

Why it’s important to know if you’re in a dud super fund

Worryingly, few Australians shift their money out of a dud fund, even when presented with evidence that their money is with a poor performer.

Industry Super Australia (ISA) found that following APRA’s 2021 performance test, only around one in 10 members of funds listed as underperforming moved their money elsewhere. That’s despite members receiving a letter encouraging them to change.

ISA estimates that the 850,000 members who stayed with a super product that failed APRA’s 2021 test, have collectively lost $1.6 billion in super savings in the past 12 months.

These losses can really pile up over time. ISA found a 30-year-old who stays with one of the dud funds for the rest of their working life could be $225,000 worse off at retirement.

“This is a reminder that there is a huge cost to doing nothing if you are in a dud super fund,” noted ISA chief executive Bernie Dean.

Super stapling can see Australians stuck with a poorly performing fund

The problem of having super in an underperforming fund could potentially be made worse by the new ‘super stapling’ rules that came into effect in late 2021.

Super stapling simply means staying with the same fund even if you change jobs. If you don’t provide a new employer with details of your super fund, the company can contact the ATO for details of any existing fund you have, and pay employer contributions into that account.

The idea behind super stapling is sound enough. It’s designed to help people stay in touch with their super through their working lives, prevent duplication of fees across multiple funds, and cut back the flow of money into Australia’s $13.8 billion pool of lost and unclaimed superannuation savings.

The catch is that super stapling can also see you locked into a dud fund for the whole of your working life unless you take active steps to switch funds.

“Lots of people don’t know you can be stapled to a super fund that has failed the government’s performance test, and that could punch a huge hole in a person’s nest egg,” Mr Dean pointed out.

What should you do if you are in a dud fund?

There’s no need to wait for a letter to know if your MySuper fund is among those that failed APRA’s 2022 performance test.

The YourSuper comparison tool on the ATO website includes the test results of all MySuper products reviewed by APRA. Funds that scored a pass are listed as ‘performing’. Those that failed are labelled ‘underperforming’.

If your super fund is listed as an underperformer, it may not necessarily be a cue to jump ship. Super Consumers Australia (SCA) found MySuper products that failed the annual performance test in 2021 have, on average, cut their fees by 20% or merged with a better-performing fund.

Xavier O’Halloran, Director of Super Consumers Australia, said this shows that APRA’s testing “continues to set people up for a better retirement by weeding out underperforming products”.

Even if your fund passed APRA’s tests there’s no room for complacency. SCA found MySuper products that passed APRA’s test by a significant margin last year, have increased their fees by an average of 5.7% over the past 12 months.

This highlights the value of checking how your super fund shapes up on an annual basis – both in relation to fees and performance. If you aren’t in a MySuper product you can still check this for yourself. Look at how your fund has performed over the long term (five years or more) and what fees it charges and compare it to other similar options available. Another option is to use APRA’s Choice heatmap.

What do you need to consider before closing a fund?

If you’re thinking about switching to a different fund, there are a few issues to weigh up before making a break.

Could you lose insurance cover?

Moneysmart advises checking the insurance you have through super before changing funds. If you have a pre-existing medical condition or are over age 60, you may not be able to get the cover you want with a new fund.

Does your fund offer fee relief for various life changes?

Some funds may alter fees depending on your situation. Virgin Money Super for instance offers a ‘baby break’, which discounts the asset-based administration fee from 0.394% to 0.044% for up to 12 months while members are on parental leave.

Does your fund’s investments align with your personal views?

Super funds offer a variety of investment options though some have a wider selection than others. However, four in five Australians expect their super to be invested responsibly and ethically according to research by the Responsible Investment Association Australasia. Having super invested in a way that matches your personal priorities may be a key driver of your choice of fund.

Does your fund offer perks that benefit you today?

Super is first and foremost a place to grow retirement savings, but a number of funds offer sweeteners that can be of value today.

Australian Retirement Trust offers a Rewards program that can let members tap into discounts with various outlets including Freedom Fuels, Good Guys Commercial, and JB Hi-Fi Solutions (conditions apply). Guild Super and Child Care Super offer ‘Supersuper’ – a shop-and-save rewards program, where cash rewards are added to your super as after-tax contributions. Members of Virgin Money Super can earn Velocity points on super contributions.

What to consider when choosing a fund to switch to

Most Australians are able to choose their super fund, and there are three main issues to weigh up when deciding which fund is right for you.

Investment returns

No fund stays on top of the leaderboard for returns year after year, so it’s worth looking for consistently good returns over, say, a five-year period. Bear in mind, returns will vary with investment options, so be sure to compare returns across the same investment strategies.

Low fees

As a general rule, the lower the fund fees, the better – it means more money going towards your retirement savings.

Insurance

The majority of super funds include life insurance and total and permanent disability (TPD) cover as automatic inclusions of your super. Some also have income protection insurance as a default. It’s worth knowing what you’re covered for – and how much cover you could have across various funds.

If you decide to switch funds, be sure to let your employer know the details of your new fund so that regular contributions can be made to the right account without delay.

→ Related: How to change super funds

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