More and more funds are offering different investment options, a development which has been driven by the launch of MySuper on July 1, 2013.
“We have seen very different approaches being taken by the banks and industry funds. Most industry funds are not going to do anything different, but every retail fund has launched new products with new investment strategies which are in most instances lifestyle based,” McPhee says.
Netwealth deputy director Matt Heine told SmartCompany 2014 will be an interesting year because new investment options are starting to emerge.
“We are seeing new types of investments coming to market, including separately managed accounts,” he says.
These accounts give you more control over your super assets, but with the ease of a managed super fund.
In a separately managed account, you’re the beneficial owner of the investments in the account and you are able to view underlying Australian shares in reports/financial statements and save on management costs.
There are also increasingly targeted options with a retirement focus as the population ages.
“We’re seeing lots of new products come to market targeting people of a retirement age with high levels of income and reserve capital,” Heine says.
Mohankumar says what type of fund you choose should be influenced by your age and financial position.
“If you’re young and just starting to work you can be in a more aggressive option. Even if there is a sharemarket downturn you have many years to recoup the losses. But over the years you tend to move to a more conservative fund,” he says.
“If you need to move funds it’s a fairly straightforward process. We’re seeing a move toward life cycle strategies and in some funds, depending on how old you are, you can be automatically moved.”
Fees charged by funds are an important consideration when investigating superannuation funds.
SuperRatings calculates the average fee charged by super funds for a $50,000 portfolio is $728 a year or 1.45%. (This figure includes administration and investment management charges but generally excludes adviser commissions except where incorporated in administrative fees.)
The average not-for-profit is $526 and retail master trust is $932 and the average MySuper fee is $508. So there is an enormous reduction in old versus new products.
“Fees should be important as they are something members can control, but the caveat I have is cheap does not necessarily make better,” McPhee says.
He advises making a decision based on a consideration of both quality and fees.
Fees charged by superannuation funds have reduced dramatically in recent years, a change McPhee says is partly driven by the introduction of MySuper.
“Until recently, not-for-profit fees were a lot lower than retail funds, but we have seen not for profit fees increase over the last few years, whereas retail funds are cheaper,” he says.
According to Heine, many funds have docked their fees by 15-20% in recent years.
“Fees have come down as an industry over the last 12-18 months… but there are different price points depending on what you want,” he says.
“The super market has divided into segments and what’s important is what kind of fund you want. If you want a fund with lots of investment, management and insurance options, you’re going to pay a higher fee.”
Heine says people who opt for low-level engagement funds such as MySuper can expect lower fees.
McPhee recommends ING Direct’s default option as the cheapest option in the market.
“It has pretty good investment options. You can buy shares and ING term deposits, so it is not a bad product at all,” he says.
According to SuperRatings, the top five funds for lowest fees as of September 2013 for balances around $50,000 were ANZ Smart Choice Super, Bendigo SmartStart Superannuation Plan, First State Super, Club Plus Superannuation and StatewideSuper.
But Mohankumar says not to choose a fund based on its fee.
“We discourage people from investing in a fund purely because it has a low fee. A fund with a very low fee means it can’t invest in alternative assets which have proven value,” he says.
“We don’t want to see a race to the bottom in terms of fees; we want members’ investment returns to be maximised.”
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Cara Waters is a former SmartCompany editor. Previously, Cara was a senior reporter for the Financial Times’ website and worked for The Sunday Times in London.
