Best and worst super funds: How to boost your retirement money by $660k in Australia

The average worker can boost their retirement by a massive amount with a simple change. Find out the “gamechanger” that’s just been introduced.

Aussies could boost their retirement funds by $660,000 by switching from the worst performing super fund to the best, according to the Productivity Commission.

The advice comes as the government launched a new website to make it easier for people to compare how superannuation funds are performing in terms of their returns and fees.

The tool, called YourSuper, is expected to apply pressure to funds that are providing poor returns to members.

It ranks funds based on their annual performance over six years and the fees charged, allowing users to customise the rankings based on their age and super balance.

The best performing funds according to the tool were AustralianSuper and Hostplus Superannuation Fund with an 8.1 per cent return over six years, although Hostplus fees were much higher at $628 compared to $387.

These results were based on a 30-year-old with $50,000 in superannuation.

The worst five funds all delivered returns of less than 5.5 per cent over a six-year period.

The top ranking worst performer was Energy Industries Superannuation Scheme-Pool, which gave a rate of return of 4.58 per cent, almost half that of the top performing funds.

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Not enough competition

One of the big problems with the superannuation system is that there isn’t much competition between funds, according to Xavier O’Halloran, director of advocacy group Super Consumers.

“The system is complex and hard to engage with, so super funds have been free to do what they want with people’s money,” he told news.com.au.

“Few people know how much they’re paying, and until last week it was hard for them to compare fees across the market.”

He described the introduction of the YourSuper tool as a “gamechanger” because it shines a light on funds that are charging excessive amounts for lacklustre performance.

“In addition, funds will be subject to a new performance test which determines how much value they are adding to members’ retirement savings,” he said. “These developments will drive funds to bring down fees as much as possible.”

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But Australian super funds had delivered the strongest investment performance in the history of compulsory superannuation last year, with an average annual return of nearly 20 per cent, said Dr Martin Fahy, CEO of the Association of Superannuation Funds.

“Super fund members invest money to make money. For every dollar invested through super last financial year, MySuper funds members earned 20 cents into their retirement nest egg,” he said.

“Typically, Australian super funds deliver an annual return of 9 per cent, which is a solid investment outcome compared with say, the return on a term deposit, which has averaged around 1.7 per cent for the past five years.”

Hefty fund fees

But it’s not just investment returns that are a factor in Aussies’ retirement success.

Figures have showed that Aussies spend more than $30 billion in super fees every year, according to the 2019 Productivity Commission review into superannuation, and that’s excluding insurance premiums.

A more conservative estimate for the fees is $19.3 billion, with investment expenses totalling $8.7 billion and administration and operating expenses costing $10.6 billion, according to the Australian Prudential Regulation Authority.

But just a small 0.5 per cent difference in fees can be a huge drain on an Aussie’s retirement funds. Paying this slightly higher fee would cost someone $100,000 or 12 per cent of their balance by the time they retired, according to the Productivity Commission.

The most expensive option for fees is Mercer Super Trust for retail staff, which charges an annual fee of $820, according to YourSuper.

It’s a stark difference with the cheapest option, coming in at $565 less, with Super Directions Fund’s annual fee just $255.

Qantas Superannuation Plan is the second most expensive at $693 a year, followed by MyLifeMyMoney Superannuation Fund, which charges $684 annually.

Cheaper options include UniSuper with a $326 annual fee and the Bendigo Superannuation Plan, which costs $333 a year.

Super Consumers Australia director, Xavier O’Halloran, has said the ability to compare super funds is a ‘gamechanger’. Picture: Supplied

Fees take a big chunk out of balances, so it’s important that funds can justify the fees they are charging and that those fees reflect better returns, Mr O’Halloran said.

“At the moment we are seeing funds spending a lot of member money on things like lobby groups, lavish conferences and advertising,” he claimed.

“In a lot of cases funds can’t show how this expenditure leads to better outcomes for consumers.”

But Dr Fahy said super fees are generally comprised of administrative and investment fees and when assessing the cost, it’s critical to consider net returns, meaning super returns earned minus fees paid.

He said MySuper funds invested $850 billion in the last financial year and made $170 billion for members, who paid $6.5 billion in fees.

“In other words, annual returns were over 21 times the total amount of fees paid in 2021,” he said.

Figures from last year showed an estimated aggregate saving of $408 million since 2019 on fees, he added.

“Super fees have fallen in recent years as fund mergers and digital advancements deliver efficiency gains,” he said.

Dr Martin Fahy, CEO of the Association of Superannuation Funds, said there had been returns of $170 billion last year. Picture: Supplied

No more hiding bad results

From September, funds won’t be able to hide from their bad results either.

The YourSuper tool will label funds as “under performing”. Super funds will be required to communicate this information to their members and direct them to YourSuper.

The funds will also be ranked by their performance over eight years, extending the scrutiny time.

The government expects that the reforms will lead to an aggregate improvement in superannuation balances of $17.9 billion over 10 years or by around $1.8 billion a year.

The new performance test will force funds to lower their fees or risk losing access to new and existing customers, believes Mr O’Halloran.

Aussies should log into the ATO’s new YourSuper comparison tool to see how their fund stacks up. Picture: Getty Images

But he said there is still more needed to be done to address flaws in the super system, including young people forced into their employee’s choice when first joining the workforce.

“The next step is to fix the system so that people are defaulted into great funds when they start their first job,” he said.

“The system needs to focus on delivering better outcomes for people, rather than just getting funds to meet minimum standards.”

For now, Mr O’Halloran recommends Aussies log into the ATO’s new YourSuper comparison tool to see how their fund stacks up.

“Total average fees in super are around 1 per cent, so this is a good rule of thumb to see if you are paying above average,” he said.

“Keep in mind that switching funds may impact your included life insurance. We recommend contacting your fund to find out if your insurance offer is right for your needs.”