We offer some advice on comparing superannuation, including fund performance, ethical consideration and understanding risk levels.
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Ethical considerations are the most important for me, and Australian Ethical appear to have performed quite well in the current conditions. Fees are low, and my relatively modest balance has rebounded to just above pre-COVID levels now, despite zero contibutions in my extended unemployment.
I discovered that the age related default “MySuper” option on my chosen fund was under-performing even the Stable option. This is the option that appeared about 2013 and was an attempt to get people into a conservative fund that became more conservative as they aged with lower % returns and lower % for lower balances.
The various funds have names like Lifecycle, Aspire, rather than Stable, Balanced etc. The idea being that if you had a low balance and getting close to retirement, you would want low growth. I was moved into one of these options, had a look at the woeful return (only cash was lower) and moved back into Balanced. My husband’s fund’s option was the same as Stable. Another thing to watch out for. Check the returns at least once a year.
Yet recognise that many funds have lumpy performance from year to year, so a few years average is what to look at.
For most funds there is a spread between buy and sell values so it costs to switch. In the worst case a fund member will not only pay the buy-sell spread but might sell during a bad year for them and miss out on the next good one - because they transferred into a fund that was doing well last year but then went ordinary in the upcoming one. Lose-lose when that happens.
We have a public service accumulation fund and some retail funds. The retail funds (not the default balanced options!) include a mix of options that year upon year have done much better than the public service fund. The public service fund is more consistent over time. If we bailed from the retail fund after a bad year or two we would have lost about 15~25%. On balance we can do that because we are not dependent on super income as yet nor for the foreseeable future so can tolerate reasonable risk.
It is not always as straightforward what to do as it appears.
Now I am retired, I am shocked at the number of people who don’t pay any attention to their super. Our neighbour took all his out because he thought it would devalue during the pandemic and it certainly is now, under his mattress. The younger members of the family who were unaffected by the COVID crisis cleaned theirs out, “because they could” and blew it, and advised us to do the same.
My husband (to-be at that stage) had no idea what his Super was doing, despite annual statements. When his wife died her super was cashed out to him, the family took most of it and the neighbour advised him to see a Financial Advisor. He ended up with AMP who charged him $7k to put $100k in and promptly lost $43k over 18 months. He had no idea that was happening. He assumed they would tell him if anything was going wrong.
My advice to these people is to treat it like a bank account. Check your statement and ask to go into a different account or fund if it isn’t performing. Go to an Industry Super fund. Bear in mind that even in a crisis, war, pandemic; someone is making money. I have an accounting background and keep a close eye on things. His super earned the equivalent of 11%pa in the first 6 weeks of the financial year (June/July 2020).
Super is one of the BEST investments an ordinary person can make, but you need to pay attention to it.
I would advise to check for what insurance policies are included in the super account(s). If you don’t need life insurance anymore, get rid of those charges that are a drag on your earnings. If there is TPD insurance, get rid of that, as it is notoriously hard to claim if you become disabled enough to be unable to work. If ever there was a shonky, TPD would be it as it exists in many guises.
That may be a reasonable assessment given employees can have access to other claims and cost recoveries, EG Workers compensation, NDIS, legal recourse. Not everyone or their near ones have short term fall backs in the instance they are so seriously injured they become a burden rather than a contributor.
TPD insurance can be worthwhile, in particular for those who are temporary, casual, self employed or perhaps on a transition to retirement. There are a range of needs. Whether a policy attached to super delivers what is required might need a careful assessment of personal circumstances and the quality of the actual policy on offer.
Getting onto the NDIS has a long wait, and there are needs that the system is unlikely to fund in the interim. Spend time visiting rehab in a major hospital and connecting with those in the shared wards, it soon becomes apparent. There are many avoiding discharge for as long as is possible because they can’t afford to leave. My observation may be biased by recent experiences.
Whilst life insurance is pretty cut and dried, paid out if you are dead, from what I have read about TPD insurance offered as part of superannuation it is for the most part junk.
If you really need specialized insurance such as TPD, you should seek it outside of the super system. And really carefully consider the conditions.
