How to choose a super fund

ELISE DONALDSON
Most Australian workers can choose the superannuation fund into which their super contributions are made. We take a look at how this process works.

Generally speaking, an employee can choose the super fund they want their super contributions paid into by filling out the Australian Taxation Office’s Superannuation standard choice form when they start a new job. This form is generally provided by your employer.

While the ability to choose their own super fund has given workers a certain degree of power, the actual choice of a fund can sometimes feel rather complex, with a large number of products from both retail and industry funds vying for consumers’ investment dollars.

There are many superannuation funds – and thousands of superannuation investment options – to choose from in Australia. When choosing a super fund, we’d recommend you compare your options based on factors that are important to you, which could include competitive fees, strong past performance, a good combination of investment and insurance options, and other services that may be important to you such as easy online rollover of funds.

So when assessing a super fund, you should consider questions like:

A proactive choice early in your working career has the potential to significantly enhance your retirement nest egg.

5-Star Rated superannuation funds

If you’re considering outstanding value superannuation funds, the table below displays a snapshot of 5-Star Rated superannuation funds on Canstar’s database for Australians aged 30-39, sorted by provider name (alphabetically). Performance figures shown reflect net investment performance, i.e. net of investment tax, investment management fees and the applicable administration fees based on an account balance of $50,000. To learn more about performance information, click here. You can see the products most relevant to you by using the tabs to view results for a superannuation balance of $0–$55k, $55k–$100k or $100k–$250k. Use Canstar’s superannuation selector to view a wider range of super funds. Canstar may earn a fee for referrals.

Does the super fund have competitive fees?

Administration and fund management fees can differ widely from fund to fund and from investment option to investment option. While an extra 0.50% per year in fees may not seem very much when your account balance is small, that extra fee margin can add up to a large dollar value as your account balance grows. The hypothetical examples in the table below illustrate how this could work.

Difference 0.50% in fees can have on retirement balance

Scenario 1 Scenario 2
Starting age 25 25
Retirement age 67 67
Starting gross
annual income
$74,516 $74,516
Starting balance $25,096 $25,096
Average investment
returns
6.85% 6.85%
Fees as a
percentage of
balance
1.00% 1.50%
Average life
insurance premium
$191 $191
Account balance
at retirement
$764,149 $662,353
Difference to
Scenario 1
retirement balance
-$101,796

Source: www.canstar.com.au. Prepared on 24/05/2021 based on data available as at that date. Scenarios begin at the start of the 2021-22 financial year and are based on a 25-year-old with a starting balance of $25,096 (per the average from APRA’s Annual Superannuation Bulletin for a 25- to 34-year-old) with a starting gross annual income of $74,516 (the median figure for an employee working full-time in their main job per the ABS’ Characteristics of Employment data), growing 2.5% annually (per the RBA’s inflation target), retiring at age 67. SG contribution amounts are per government-announced rates and assumed to be paid into superannuation fund quarterly. Employer contributions are assumed to be taxed at 15%. Investment returns assumed to be 6.85% p.a. based on the average 10-year annualised rate of return per the APRA Superannuation Bulletin (June 2020). Net performance deducts fees of 1% p.a. or 1.5% p.a. of balance for scenario 1 and 2 respectively. An average life and TPD insurance premium of $191.35, growing 2.5% annually (per the RBA’s inflation target), is assumed to be charged at the end of each year based on products available for a 25-year-old on Canstar’s database. End balance at retirement is shown in “today’s dollars”, i.e. it has been adjusted for inflation. Please note all information on income, annual superannuation fees and performance returns are used for illustration purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.

Does the superannuation fund have a good selection of investment options?

Superannuation is an investment structure designed to give you a nest egg of savings for your retirement. It is the underlying investments that you choose to hold within that structure that will determine the performance of your investment. Those investments could include cash, bonds, property, Australian shares or international shares, or could be a mixture of all these asset classes. Consider professional financial or superannuation advice on what asset classes would suit your situation, and ensure that your superannuation fund of choice has something suitable.

Does the superannuation fund have a good long-term track record?

Superannuation is a structure set up for the purpose of helping Australians save for their retirement. Being a long-term investment, performance is one of the most crucial factors to consider when choosing a super fund. Small differences in performance can make a big difference to your retirement nest egg. Small differences in fees can also make a big difference, as highlighted above, so it’s important to consider both in relation to each other. You may also wish to investigate the performance of ethical investments when you’re considering all of your super options.

While past performance is not a reliable indicator of future performance, a good long-term return will boost your retirement nest egg and even a 1% difference can add up to a lot of money by retirement. The hypothetical examples in the table below highlight the significant effect that even a 1% or 2% difference in annual performance could have on a person’s super account by retirement.

Difference 1% in earnings can have on retirement balance

Scenario 1 Scenario 2 Scenario 3
Starting age 25 25 25
Retirement age 67 67 67
Starting gross
annual income
$74,516 $74,516 $74,516
Starting balance $25,096 $25,096 $25,096
Investment returns 6% 7% 8%
Fees as a
percentage of
balance
1.33% 1.33% 1.33%
Average life
insurance premium
$191 $191 $191
Account balance
at retirement
$560,640 $722,597 $941,856
Difference to
Scenario 1
retirement balance
$161,957 $381,216

Source: www.canstar.com.au. Prepared on 24/05/2021 based on data available as at that date. Scenarios begin at the start of the 2021-22 financial year and are based on a 25-year-old with a starting balance of $25,096 (per the average from APRA’s Annual Superannuation Bulletin for a 25- to 34-year-old) with a starting gross annual income of $74,516 (the median figure for an employee working full-time in their main job per the ABS’ Characteristics of Employment data), growing 2.5% annually (per the RBA’s inflation target), retiring at age 67. SG contribution amounts are per government-announced rates and assumed to be paid into superannuation fund quarterly. Employer contributions are assumed to be taxed at 15%. Investment returns assumed to be 6%, 7% or 8% p.a. for scenarios 1, 2 and 3 respectively. Net performance deducts fees of 1.33% p.a. based on products in Canstar’s database available for a 25-year-old. An average life and TPD insurance premium of $191.35, growing 2.5% annually (per the RBA’s inflation target), is assumed to be charged at the end of each year based on products available for a 25-year-old on Canstar’s database. End balance at retirement is shown in “today’s dollars”, i.e. it has been adjusted for inflation. Please note all information on income, annual superannuation fees and performance returns are used for illustration purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.

What insurance options does the superannuation fund offer?

Many superannuation funds offer a level of personal insurance cover and the premiums can be cost-effective for some workers, although it is worth knowing that the level of default cover may be limited should you need to make a claim in the future, and exclusions can apply. It is best to check the PDS and contact your super fund for further details. The types of insurance that may be included in your superannuation fund are:

  • Life insurance – generally provides a lump sum payment to your beneficiaries upon your death.
  • Total and Permanent Disability insurance –  pays you a lump sum if you become totally and permanently disabled.  The definition of total and permanent disability varies between insurance companies but it typically means that you are disabled to the extent that you will probably be unable to work again.
  • Income Protection insurance – insures you for a set level of your income for a certain length of time in the event that you cannot work due to illness or injury. There are a range of income protection insurance options to compare.

What other services does the superannuation fund offer?

There are a number of other features super funds may offer, so it could be worth thinking about which ones are most important to you. For example, can you access your account details online? Is it easy to make additional contributions into your account? Does the fund offer the option for personal financial planning advice? Does the fund offer member education, retirement planning advice, or online superannuation calculators? The list goes on.

Consider making a checklist of what services you are looking for are and asking your fund whether it provides them.

Don’t forget: your superannuation is your money. Researching your options and choosing a super fund to suit your needs is worth the effort. You may wish to seek advice from a qualified adviser to help you reach a decision.

To view the past performance of all super funds rated by Canstar, use our comparison tool: