This new tool to compare super funds could save you $100,000. Here's how it works - ABC Everyday (2024)

Did you know Australians spend over $30 billion each year in superannuation fees?

That's about $1,000 for every Australian. Put another way, it's about four weeks of grocery bills for an average family.

It's a lot of money, and if you're in a high-fee super option, it could put a big dentin your retirement savings.

"The Productivity Commission looked at this issue … [and] they found that quite often lower-cost products have better outcomes. That's because the fees that you pay decrease the earnings of your fund," says Xavier O'Halloran, director of consumer advoacy organisation Super Consumers Australia.

It's not small sums we're talking about either.

The Productivity Commission found that an "increase of fees of just 0.5 percentage points can cost a typical full-time worker about 12 per cent of their balance (or $100,000) by the time they reach retirement."

This is why it's important to regularly check up on your super.

Thanks to the YourSuper comparison toollaunched by the Australian governmentin July, it's easier than ever to compare the options.

Here's how to use the tool and some important things to consider when weighing up your options.

How to use the YourSuper comparison tool

The YourSuper tool compares superannuation products based on their annual fees and net returns over six years.

There is a basic tool, which lists 80 different products.

There's also a personalised version that you can access through MyGov. You'll need to login to MyGov, choose on the ATO service. From there, use the "Super" menu, then "Information", then "YourSuper Comparison".

The benefit of the personalised version is that estimates of fees for super products arebased on your real super balance. The basic tool simply assumes a balance of $50,000.

Before you jump in, there are a few important things to note:

• The tool currently only compares MySuperproducts. These are low-cost, simple products that many Australians are put into by default.
• Many superannuation funds offer other non-MySuperinvestment options. They may be called"aggressive", "high growth" or "defensive". These non-MySuper products will be added to the tool in 2022. In the meantime, you should be able to get information about returns and fees from your super fund's website.
• The tool lists a "six-year net return". This is the annualised rate of return received from the fund after all fees, taxes, and other costs. In future, funds willbe assessed over eight years rather than six.
• From September, the tool will also list an assessment offundsperformances by the Australian Prudential Regulation Authority (APRA). Funds will either be marked as "performing" or "underperforming". Until then, all funds will be listed as "not assessed".
• Keep in mind the tool does not compare insurance options, which vary considerably between funds.

The pros and cons of the YourSuper tool

The key advantage of the tool is that it's simple to use, Mr O'Halloran says.

"It's absolutely a good thing. Previously it was very hard to compare funds all in one place with reliable information," he says.

"It's complicated —and this has cut through a lot of the complication."

But one factor the tool doesn't take into consideration is asset allocation —in other words, how your super is actually invested.

Chris Brycki runs robo-investment firm Stockspot and publishes research on underperforming super funds. He says that some MySuper funds are invested much more aggressively than others, which can make comparisons difficult.

"One fund called a 'balanced fund' could be completely different to another fund called a 'balanced fund'," he says.

"I think that causes a huge amount of confusion with consumers."

For example, Mr Brycki says some balanced funds may have 80 per cent of their assets in shares, property, infrastructure and private equity, which offer higher returns, but also carry higher risk.

Other balanced funds may only have 60 per cent in these assets, and therefore produce lower returns but carry less risk.

Nevertheless it may be hard to distinguish between the two in theYourSuper tool, Mr Brycki says.

"Funds that take more risk make higher returns over the long run, but when markets drop they have bigger drawdowns or falls," he says.

"Vice-versa, funds that take less risk earn lower returns but when the market falls, they don't have as much volatility."

While you can't find out how your super is invested in the YourSuper tool, you should be able to find a breakdown in the product disclosure statement on your fund's website.

Things to consider before you switch

If you find your fund is performing worse than other options, you might be thinking it's time to switch funds.

It's not that hard to do, and you may end up far better off in retirement. But there are some important things to consider before you switch.

"That could be a lightbulb moment —if you notice there is a long period of significant underperformance," saysDr Elizabeth Ooi, a senior lecturer in finance at the University of Western Australia.

"It's definitely important … [but you need to consider performance] together with fees, risk and insurance."

For example, if you switch out of a fund, you may lose insurance cover. Your new fund may require you to undergo underwriting, which could lead to higher premiums.

If you're lucky enough to be in a defined-benefit super option – for example, if you work in the military – you should think very carefully before switching out, as you could be missing out on risk-free retirement income.

The key message? Keep an eye on your super and don't simply setand forget. It's a habit that can save you a huge amount of money by the time you retire.