The whys of poor super funds performance always boil down to one reason and mostly one reason alone: the fees are too high.
While it’s a good idea to have your super managed by a fund if you don’t have the time nor the expertise to manage it, staying in control of your super money gives you certain leverages to build your super faster and potentially earn better.
There are pros and cons, for sure. In Australia though, high fees for super funds can set you back at least two years’ worth of salary. Another research reveals high fees could make you poorer by $200,000 by the time you retire. But that is not the extent of the problem.
As said by the Productivity Commission, poor super funds performance persists because of the structural flaws of the super system.
Default funds arrangements, redundant fees, and insurance premiums for multiple super accounts are all likely to eat away your retirement fund.
With about 5 million super accounts underperforming, damage to super income is “nigh impossible to overstate,” the Commission said.
Not including substandard management, all these account for why some super funds performance are well below average.
How to compare super funds
It’s not enough to just look for a super fund with the lowest fees and call it a day. If you are going to compare super funds performance and check out the fees, make sure you also compare the investment return periods as well as the schedule of fees. In other words, don’t compare apples with oranges.
In general, you can compare the following:
- Investment options
Fees. Check out the rate and how often you would be charged. Comparing the fees of super with an annual payment schedule with another super with a 5-year payment schedule, concurrent with an investment period of five years, for example, would be a mistake.
Also, read the fine print and check all fees they’re charging. Aside from admin fees, your super fund may also charge for investment fees, advice fees, buy and sell spread fees, investment managers’ fees, and more.
Investment options. Go with super funds that offer investment options you’re comfortable with or choose one that offers self-directed investment options so you’ll have better control of your super investment.
Insurance. Take a look at insurance offers and fees for each. Most super funds have default insurance included, but if yours provide options, choose the coverage according to what you only actually need.
Benefits. Are there any extra benefits they are offering?
Performance. Experts agree that super funds performance is best measured with a data of at least 5 years. It’s a mistake to simply pick the best super fund from the previous year.
Compare super funds performance after fees and tax. It’s also good to remember that past performance is not a reliable indicator of future performance and that no one can accurately predict how an investment will perform.
You should also weigh the benefit of choosing a super fund with low fees but also have low investment returns for long periods.
Is it time you manage your own super?
Is SMSF the solution to unsatisfactory super funds performance? Only you can answer that.
While there are no admin fees, you’d have to consider the cost of compliance and audit as all these will eat into your super returns, particularly if your balance is too low.
Also, while you’re at it, it would also be worthy to check out the super rate and threshold as set by the ATO. Whatever you do, remember that there is a wisdom to consulting with a professional.
With a Self- Managed Super Fund, you don’t have to pay fees to super funds. BUT, if you don’t have a strong understanding of investment risks, it’s best to hire a financial advisor to help you maximise your SMSF returns and take advantage of every available tool to grow it.
If you need help setting up an SMSF investment strategy, contact a Chan & Naylor accounting specialist today. We’re here to help.
Aside from SMSF assistance, have a look at our other accounting and advisory services designed to help you achieve greater financial success.
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