Picking your first super fund this year? 6 things you should know

Instead of taking the first one that's offered to you, take some time to figure out which super fund is actually best for you. You'll thank yourself later.

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When you open your first super fund, the easy thing to do is just opt for the one your employer recommends. But is that really the best thing to do?

Instead of blindly heading into what will likely be one of the biggest investments of your life, why not set aside some time to do a little research and compare super funds?

Choose wisely, and you could end up with a much more generous nest egg by the time you retire, while also putting your hard-earned money into investments you actually care about.

If that sounds good to you, keep reading to find out what you should know before choosing a super fund and why it's so important to pick carefully.

Your first super fund could be very important

Recently passed legislation known as Your Future, Your Super means that from November 2021, you'll be stapled to your first super account, or your existing one if you're already in the workforce. That means your first fund will follow you from job to job, unless you actively decide to switch. But we rarely do that.

In fact, in a Finder poll of over 22,000 Australians, just 8% said they'd switched super funds in the last 6 months. That means choosing your first super fund will become more important than ever, because the majority of us will end up keeping it for a long time.

If you're unfortunate enough to stick with an underperforming fund, this could be disastrous for your retirement plans. Let's take a look at the maths, using MoneySmart's superannuation calculator.

Okay, so imagine you open your first super fund at 21 and consistently earn $65,000 every year until you reach 65. If you're stuck with an underperforming fund with an average return of 5%, you'd have less than $447,500 saved by the time you hit 65.

However, if your first fund was a high performer, you'd be retiring with much more. For example, as of 31 March 2021, Aware Super's MySuper Growth option had a 5-year annualised return of 9.8% p.a. Using that percentage and the same details as above, you'd be retiring with a whopping $1,197,262.

Remember, this doesn't take fees, insurance or tax into account, and things are rarely as simple as the situation I described, but you can play around with the MoneySmart superannuation calculator to get a better understanding of your specific situation.

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You have to pay fees

That takes us nicely onto our next point. All super funds charge fees and you'll have to keep your eyes peeled for two different types – administration or fund fees and investment fees.

They'll either be a set dollar amount, a percentage of your balance or a combination of both. Simply put, the lower the fees, the better.

While taking note of fees is important no matter who you are or how long you've been in the workforce, they're particularly important for low-earners and newcomers to the workforce.

That's because if you don't have a particularly big super balance, fixed dollar administration fees can have a disproportionate impact on savings.

Performance varies between funds

Not all funds are as profitable as others. Some funds have a higher-risk strategy which brings potential for higher returns. Others are more conservative, sticking with lower risk investments which deliver modest returns.

Many funds, including Aware Super, will manage an individual's risk journey. That means you'll have a higher-risk investment strategy when you're young and a much safer strategy as you near retirement.

While past performance isn't always an indicator of future results, it is important to look at how competitive your super fund has been over different time frames.

Just remember to compare like for like though – so only compare a balanced option with another balanced option, and always use the same time period.

Thankfully, changes under the Your Future, Your Super legislation means underperforming super products will be named and shamed, with letters sent out to members letting them know.

Investments vary too

Super funds invest your money for you, which means they get to choose which industries and organisations to invest in too. But some funds aren't shy of a questionable investment.

It's pretty common to find funds investing in everything from fossil fuels and gambling organisations, to weapons manufacturers and offshore detention centres.

There is growing interest in ethical funds though. For example, Aware Super is recognised as a Tobacco-Free fund by Tobacco Free Portfolios, meaning it doesn't invest in companies that derive 5% or more of their revenue from the manufacture or production of tobacco products.

Don't forget insurance

Many super funds offer a range of insurance policies to members, including life insurance, TPD insurance and income protection insurance. In fact, of all the Australians who have life insurance, more than 70% have it through their super.

This is one of the most affordable ways to get cover and funds usually let their members adjust the cover amount, so they can create a policy that suits them.

However, although life insurance through your super is usually cheaper, it may be less comprehensive than direct insurance policies and fees can eat into your retirement nest egg.

Always compare funds

Arguably the most important thing to know before choosing your first super fund is that you should always compare different providers before jumping in.

According to Stockspot's 2020 Fat Cat Funds Report, you could save over $200,000 by comparing your super fund and switching to a more suitable one.

You could also redirect your money away from harmful industries that don't agree with your politics or ethos, into projects that you support on an individual level.

Invest your super in a tobacco-free fund with Aware Super

The information in this table is based on data provided by SuperRatings Pty Limited ABN 95 100 192 283, a Corporate Authorised Representative (CAR No.1309956) of Lonsec Research Pty Ltd ABN 11 151 658 561, Australian Financial Services Licence No. 421445. In limited instances, where data is not available from SuperRatings for a product, the data is provided directly by the superannuation fund.

*Past performance data and fee data is for the period ending October 2024