Myths About Superannuation
As financial advisers we often get asked: “which superannuation fund is the best?”
The truth is there is no “best” super fund out there and no “worst.”
There is a multitude of organisations and publications that try to “rank” super funds based on various criteria that typically boils down to a comparison of fees and/or investment performance of the default investment option.
When it comes to choosing the fund that is right for you, this information is often misleading and results in people choosing funds that rank well based on the analysers criteria, not the criteria that is most important to the individual.
At the end of the day all superannuation funds are the same in that they are all simply legislated trusts that have special rules around three key areas:
- Contribution and Withdrawal Strategies – when and how you can put money in and take money out.
- Tax – how much tax you pay and when you pay it.
- Sole Purpose Test – the fund must be run for the sole purpose of providing an income for your retirement.
So why are there so many of them and what is the difference?
When it comes to choosing a superannuation fund for our clients we focus on two key areas:
Fees vs Features
The trick is to get the balance right between the fees that you are paying and the benefits that you are receiving for those fees. You typically get what you pay for in this world and super is no different, so you need to make sure that you are getting what you need at a reasonable cost. Therefore, the cheapest fund is not necessarily the best nor is the most expensive. For example, some funds offer less than 5 total investment options while others offer over 300+. The option that offers over 300+ options may cost a bit more, but it may be worth paying for. Vice versa if your situation only warrants one investment option then why would you pay for 300+?
As financial advisers we often hear people say “I don’t believe in super, super lost me money during the Global Financial Crisis” or “Super doesn’t grow as fast as my other investments so why would I put money into it”. The truth is that super didn’t lose you any money, the investments you chose within your super fund lost you money. You can invest your superannuation into almost anything that you can invest money outside of super into.
Superannuation is not an investment, it is simply a trust with special rules as discussed above. Therefore, one of the most important things to consider with your superannuation is how is it invested and what fund offers the best investment options for you.