Opinion
My super isn’t growing, should I switch funds?
Paul Benson
Money contributorMy super fund has been underperforming for a few years now when compared to an alternative fund I’ve been considering. Despite my fortnightly contributions – including salary sacrificing – my balance has stayed the same for the past few months. I would be locking in my losses if I moved, but would it be better to move sooner rather than later to a better-performing fund? Both funds charge about the same in fees. I am 53 and may need to start using my super or doing a total withdrawal at age 60, which is only seven years away.
Thanks for your question. You’ve touched on one of the toughest challenges in the financial planning sphere.
In Australia, we’re blessed with one of the best retirement savings systems in the world. But comparing funds is extremely difficult.Credit: Simon Letch
In Australia, we’re blessed with one of the best retirement savings systems in the world. And as a part of that system, we have the choice of whom we’d like to entrust our savings with.
But comparing funds is extremely difficult. In my office we recently compared the default options of two of the largest funds in the country, looking at returns over 1, 3, 5, and 10 years. Fund A had the best 10 years numbers, but B had the better 1 and 3-year numbers. They were pretty similar over 5 years.
My colleague felt we should recommend Fund A, on the basis superannuation is about long-term investment, and so you want the fund with the best long-term numbers.
I suggested that the numbers could be interpreted differently. Maybe Fund A’s best days are behind it. Perhaps the people who drove that great 10-year result have now retired or moved to another fund. Maybe they now work at Fund B!
You could interpret the numbers to mean that Fund B has the best team right now, and that is where you should put your money. See the dilemma?
With past returns being difficult to interpret, you’re right to look at fees. But the problem is, as you observe, these days most of the funds have pretty similar fees for comparable investment options.
The ATO provides the YourSuper comparison tool which you might find helpful. It’s limited to a subset of superannuation options called MySuper products, which are typically the default funds within a given superannuation product.
This tool is based on data produced by APRA in their annual superannuation performance testing. Last year they examined 69 funds and found that five were poor. We’re due for the next instalment of this work in August. Perhaps wait to see if your current fund is on the list.
You mention that your balance hasn’t moved for the past few months. Ideally, don’t look at your balance more frequently than once or twice a year. Sadly, no amount of cheering from the sidelines will motivate your super savings to lift their game. Instead, such scrutiny is more likely to lead you to make decisions based on short-term gyrations that are contrary to your long-term interests.
Finally, if you do decide to switch super funds, take care to ensure that you end up with the level of insurance that you need. I had a conversation with someone this week whose wife switched super funds, didn’t obtain insurance in the new fund, and then was unfortunate enough to suffer a stroke at just 51 years of age. We all think it won’t happen to us, but bad things do happen to good people.
Paul Benson is a Certified Financial Planner, and host of the Financial Autonomy podcast. Email: paul@financialautonomy.com.au
- 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.
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