Industry SuperFunds have run a very successful advertising campaign in recent years asking people to “Compare the Pair”. Comparing Super Funds is a great idea and we strongly recommend that everyone do this, but what should you actually look at when comparing super funds?
We’re often asked to evaluate and compare different super funds for our clients.
Of course, we don’t look at an advertising campaign when we compare super funds; we look at the actual numbers and ask questions that will highlight the key differences and find any nasty features.
So, we thought it would be useful to share the most valuable questions we ask when reviewing Super Funds.
Super fund comparison: what most people look for
When comparing super funds, the areas that most people look at are:
- The fees charged by the super fund
- What investment options are available?
- What insurance options are available?
However, to actually “compare the pair”, it’s necessary to dig much deeper than these basic questions…
Comparing super funds: the questions you should really ask
When we compare Super Funds, we ask the following eight questions:
1. What are the management costs of the Super Fund itself and what fees are associated with each individual underlying investment option?
A low fee sounds great! But it’s of no use if this only covers a default investment option, and your selected investments are actually much more expensive. What are the actual management costs associated with both the super fund and its investment options?
2. What can I invest in?
Is there a wide menu of investment options that will meet your investment goals and allow you to customise your portfolio to match your risk profile?
3. What are the insurance definitions and wording within the Super Fund?
The wording and definitions within an insurance policy dictate when a claim will (or will not) be paid out.
Over the years we have seen many insurance policies with wording that would make it near impossible to make a successful claim, particularly in the area of Total and Permanent Disability (TPD) insurance. There is no point in paying for insurance that cannot be claimed upon if needed.
4. Can multiple insurance claims be made?
Can you claim on both life insurance and TPD or will a TPD claim cancel the life insurance? Are there any insurance buy back provisions?
5. What are the salary continuance benefit terms?
How long is the waiting period for any offered salary continuance and for how long will the benefits be paid?
6. What retirement options does the super fund provide?
Can the Super Fund pay pensions or will you need to exit the fund upon retirement? Can multiple retirement strategies be used simultaneously?
7. What happens with tax deductions and tax credits?
Does the Super Fund pass on your tax deductions for the management and administration costs that you pay? Does the super fund give you the tax credits that may come from the Super Fund’s investment income?
8. What about tax deductions and insurance?
Does the Super Fund pass on your tax deductions for any insurance premiums that you have within your Super Fund? It is surprising how many funds don’t!
How do you choose the best fund for you?
When you do your super fund comparison, be sure to compare apples with apples.
Many funds that base their marketing around low fees can turn out to be a very expensive superannuation choice once it has been customised for your needs.
We’ve never met anyone who wants to pay more tax than is necessary, so why choose a super fund that maximises your tax rather than minimising it?
If your super fund is keeping your tax refunds to subsidise its running costs and providing insurance that you may not actually be able to claim on – then yes, it is really time to compare the pair.
Call MJS to make a time to come in and review your super fund choices!