I did it! This week I switched super funds for the first time in my two-decade working life. It was quite the adrenaline rush, let me tell you.
After diligently researching and agonising over my various options for some weeks, I was finally tipped over the edge into action upon realising my old fund was actually charging me 0.94 per cent of my balance in annual fees, not the 0.73 per cent I had previously calculated.
After diligently researching and agonising over my various options for some weeks, I was finally tipped over the edge into action.Credit:Dionne Gain
Despite my annual statement purporting to inform me of all the ‘main fees and costs’ applied to my account, it did not, as it turns out, deem a 0.21 per cent ‘transaction fee’ worth mentioning – I had to read my full product disclosure statement to find that.
Not happy, Jan.
And so, in a fit of pique – but also armed with much research and forethought which I’ll share below – I finally made the switch to one of the low-cost, passive index fund options I outlined last week
I’ve gone from paying around $3300 a year in fees to around $400 a year now – an almost $3000 annual saving.
This is astonishing, really, and a testament to the potential savings on offer from shopping your super, particularly for larger balance holders like me (my balance is around $350,000).
So, here are my five best tips for shopping your super. There are definitely some pitfalls to beware of, so do read on.
1. KNOW THAT PERFORMANCE IS IMPOSSIBLE TO PREDICT
Yes, you should always check the Tax Office’s ‘YourSuper’ tool to make sure your super fund has not been assessed as ‘underperforming’. But beyond that, it is very hard – if not impossible – to assess a fund’s future performance based on its past performance. Fund managers who outperform one year may just as well underperform the next, and so on.
So, do yourself a favour when shopping your super and focus instead on fees and your investment choice.
It remains necessary to shop your super fund regularly over a life course.
2. FOCUS ON FEES
In the face of uncertainty, it always helps to focus on the things you can control. When it comes to super, that’s fees. Fee structures can change over time, of course. But they’ve been coming down dramatically in recent years.
Unfortunately, comparing fees across all super products and investment strategies is notoriously hard.
To compare fees across ‘MySuper’ products – which is the default investment option you get put in if you do not choose another option – you can use the YourSuper tool. Just toggle to sort the list by dollar fees charged to discover some cheaper funds.
To compare fees across ‘balanced’ products (those which park roughly 70 per cent of your money in ‘growth’ assets, like shares, and roughly 30 per cent in ‘defensive’ assets, like cash) there is a nifty website called Super Fierce.
After entering a few details, including your super balance, it provides a free ‘statement of advice’ recommending the lowest fee-balanced fund option for someone in your situation. Just note the report only compares ‘balanced’ options (to compare apples with apples) and does not give advice on which investment strategy (balanced, growth or high growth) is actually appropriate for you. Which brings me to my third tip.
3. CHOOSE YOUR INVESTMENT STRATEGY WISELY
Whether you realise it or not, you have adopted an investment strategy when it comes to your super. This is the split of assets into which you have directed your super fund to invest your hard-earned money.
As mentioned above, one such investment strategy is ‘balanced’. Other common pre-mixed options include ‘growth’ and ‘high growth’. These direct a higher proportion of your money into assets like shares, which have historically enjoyed higher returns over time. These should be the preferred investment strategy of younger people.
It’s also important to choose if you want your money – particularly shares – actively managed (managed by fund managers trying to beat the market) or in passive ‘index’ options, which are increasingly common. I prefer the latter, given studies show active managers have a hard time beating passive index options on average over time, particularly after fees are considered.
4. YOU HAVE TO KEEP SHOPPING YOUR SUPER
Wouldn’t it be great if there was just one fund that was cheapest for everyone, and we could all just pile in there and go home? As things stand, it remains necessary to shop your super fund regularly over a life course. Why? Well, not only because fees change but also because your balance size changes over time – and this can make a big impact when choosing the cheapest fund.
Most super funds charge a mix of both flat dollar fees and percentage fees applied to your total balance. People with low balances may do well to pick a fund that, for example, charges a relatively high percentage fee but a low – if any – fixed dollar fee. Why? Because any fixed fee will gobble up a bigger share of their low balances.
As your balance grows, however, you may be better off opting for a higher fixed fee, but the lowest percentage fee possible. I’m sorry, but you can’t just set and forget your super.
5. CONSIDER YOUR INSURANCE
Finally, make sure you don’t lose any insurance coverage you may have valued in your old fund before heading for the door. If you joined a fund many moons ago, you may be covered for health conditions that you have subsequently picked up. If you ditch that insurance and take up a new policy with a new super fund, any existing conditions will be excluded from your new coverage. Just something to consider. It is possible to keep a low balance in an old fund to retain insurance – although, as always, watchout for the fees.
After all the agonising over choosing the best fund for me, I found the actual process of switching incredibly painless. I filled out a short questionnaire on my new fund’s website and had a membership number within 5 minutes. I then clicked a button to instruct my new fund to contact my old fund to arrange a rollover. My funds appeared in about two days.
If you’ve made any personal contributions to your super throughout the year, be sure to give your old fund a ring to complete a ‘notification of intent to claim’ form and have it acknowledged by your old fund before you switch, so you can claim those contributions at tax time.
And there you have it. Not exactly the easiest financial decision I’ve ever made, but certainly one of the more lucrative.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Jessica Irvine is author of the new book Money with Jess: Your Ultimate Guide to Household Budgeting. You can follow more of Jess’ money adventures on Instagram @moneywithjess and sign up to receive her weekly email newsletter.
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