If you are in a superannuation fund that is underperforming or has higher than average fees, it is 100 per cent harmful to your wealth creation. You could be retiring $100,000 less than someone active about their superannuation selection. But how do I know I am in a dud Super Fund that is underperforming, Captain? I hear your ask.
In 2019 the federal government requested a Productive Commission review into superannuation. The review found that Australians were paying over $30 billion in excess fees chewing up any gains they sort to achieve. Plus some of the lowest-performing funds (6.02% AMG Super) were 3.44% worse off than the highest performing fund (9.46% Local Government Super). I’m no rocket science but if I was investing my money, I would want the best looking after it.
But how do you know where I sit?
This year the federal government released its YourSuper comparison site to compare superannuation products based on annual fees and returns over 7 years. The tool assumes you are 30 and have a balance of $50,000. But you can change the values by clicking the filter box on the upper right side.
The tool also only lists MySuper Products. A MySuper account is the default account that your employer will pay your super contributions into unless you choose a different option. This means your aggressive, high growth investment accounts won’t be displayed on the tool.
Also, it does not include any comparison between insurance options, which can vary considerably between super funds. And to make things more complex, the tool also doesn’t distinguish between funds’ assets class. For example, one balanced fund may be all assets in equities and offer higher returns, but carry a much higher risk of a downturn. While others maybe have significantly fewer equities and therefore produce lower returns but have less risk associated with them.
Holy Hec, how am I meant to compare all these options now?
Yes, it is confusing as hell, but luckily the government is trying to help with developing their comparison site. So a rule of thumb would be to check where your fund sits at the moment compared to the top-performing on the chart. The website will even tell you if your super is underperforming. Compare insurance, and identify what your risk class is. If you are about to retire soon, I wouldn’t be investing in high-risk investments. Because if another GFC hits you may not be retiring at all!
Also, check out my top 7 ways to increase your Super in 2021 & 2021
How does my super account stack up?
My Super account is a Public Sector Super Fund, which is not listed on the tool. I am not allowed to swap super and must be in this fund. Mind you they dish out 22% of employer contributions into my super account. It’s just that I am lucky enough to have the same super as the pollys, and of course, they will look after themselves.
However, my wife is with HOSTPLUS balance fund and is listed as the third-best for performance gain. but her Super is underperforming Let’s look at fees.
With a whopping 62% difference between HOSTPLUS and AustralianSuper. This can add up and chew away any fees you may have. Where $1081 extra every year in fees, this will add up to over $32,000. This means that those fees would have not compounded in growth. That will equate to $176,183 less in my wife’s super account upon retirement.
Calculator from Money Smart Website.
Now, I must heavily caveat this. This example is from a person with $200,000 in Super, AND that the return rate stays so high AND that the fees stay the same. I can guarantee you this won’t happen. But my point is that fees can hurt your wealth, not just performance return.
So, Should I Swap?
The short answer is it depends. I have reviewed all the options to our families circumstances. I have checked the insurance difference (basically the same) and prefer the more aggressive option (high growth) that AustralianSuper can provide over HOSTPLUS. The return for the last 10 years with AustraliaSuper High Growth was 10.64%, and I know past performance does not guarantee future performance.
So, with the reduced fees offered by AustralianSuper and the higher return on investment in a higher growth account. It only makes sense to swap and enjoy the higher returns and lower fees over the next 35 years till we can access it. This will leave us with over $150,000 more in our account, um yes please.
Why do I always choose aggressive funds? Because time is on your side.
Just because investment values fall, this doesn’t necessarily mean that your investment will lose money. You don’t lose money until you sell an investment for less than you paid for it.
So, if you do have a year or two when your investment value falls, remember that if the strategy you have selected is for the long-term. Where history has shown that investment markets usually go on to recover.
Investment and you shouldn’t be overly concerned with short-term fluctuations.
The key message?
Keep an eye on your super and don’t just let it sit there and do nothing with it. If your Super is underperforming, swap it out. You still need to be active in your choices. For me, this has made me realised, that I was not getting the best deal for us. Resulting in us swapping from HOSTPLUS to AustralianSuper. The Key idea here is that fees can eat up your gains, where those fees are no longer going towards that compound growth.
Just remember superannuation is a complex beast that needs to be researched and seek financial help before making a choice.
If you are looking for other ways to increase your wealth, look at my guide to NAB Equity Builder