How to Choose a Super Fund

In July 2005, legislation came into effect to enable many Australian workers to actively choose the superannuation fund into which their super contributions would be made.

Most people 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 choice of superannuation fund initiative gave workers the power, the actual choice of a fund became very complex with a large number of products, including both retail and industry funds, vying for the consumer investment dollars.

There are many superannuation funds – and thousands of superannuation investment options – to choose from. When choosing a super fund, we’d recommend you compare your options based on factors such as competitive fees, strong past-performance, a good combination of investment and insurance options as well as other services, such as easy online roll-over of funds.

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

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

The following table displays a snapshot of 5-Star Rated superannuation funds in Canstar’s database. The results shown are sorted by three-year performance and are based on a 40-49-year-old with a super balance between $100,000 and $250,000. Check upfront with your provider and read the PDS to confirm whether a particular fund meets your needs before committing to it.

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.

Example: Annual Fees Can Make A Big Difference!

Age 25 25
Salary $50,000 indexed at 2.5% $50,000 indexed at 2.5%
Superannuation contribution 10% of salary 10% of salary
Superannuation earnings 7% per annum 7% per annum
Annual fees 1% of account balance 1.5% of account balance
Account balance at age 65 $762,162 $675,500
Source: Canstar. Calculation is for example only and assumes everything other than the annual fees is consistent between the two funds.

Compare Super Funds with Canstar

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

Superannuation is simply a tax structure within the Australian Taxation Office guidelines. It is the underlying investments that you choose to hold within that structure that will determine the performance of your investment. Those investments could range from cash, bonds, property, Australian shares or international shares, or could be a mixture of all these asset classes. Consider professional 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 tax structure set up for the purpose of helping Australians save for their retirement. Being a long-term investment, performance is one of the very important factors that you need 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, 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.

Example: A Better Performing Super Fund Can Help Boost Your Nest Egg!

Age 25 25
Salary $50,000 indexed at 2.5% $50,000 indexed at 2.5%
Superannuation contribution 10% of salary 10% of salary
Superannuation earnings 7% per annum 8% per annum
Annual fees 1% of account balance 1% of account balance
Account balance at age 65 $762,162 $921,145
Source: Canstar. Calculation is for example only and assumes everything other than the superannuation earnings is consistent between the two funds.

What insurance options does the superannuation fund offer?

In terms of personal insurance, Financial Services Council has previously estimated that up to 95% of Australian families are underinsured. 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. Find out more information about income protection insurance here.

These policies can be bundled by super funds under what is called ‘group life insurance’.

What other services does the superannuation fund offer?

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, online superannuation calculators… the list goes on.

There is a wealth of other services that may be important to you. Consider making a checklist of what those services 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.

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

Compare Superannuation Funds

Learn more about Super

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