How do I choose a super fund? The five things that actually matter

Here's a quiet truth about superannuation: most Australians are in a fund they never actually chose. It was the default their first employer signed them up to, and it's followed them ever since, often unexamined for decades. That matters more than it sounds, because the fund you're in is one of the highest-leverage financial decisions of your life — fees and performance compound relentlessly over a working lifetime, and the gap between a good fund and a mediocre one can run to a very large sum by the time you retire. The good news is that comparing funds properly takes about ten minutes once you know what to look at. Here's how. This article is general information only, not personal advice.

Why is it worth ten minutes?

Super funds are not all much the same, and small differences don't stay small. As ASIC's MoneySmart puts it, even a small difference in fees or net returns can add up to a significant amount over your working life, because it compounds year after year (ASIC MoneySmart, https://moneysmart.gov.au/how-super-works/choosing-a-super-fund). To illustrate the scale, a difference of just one percentage point a year, compounded across several decades, can plausibly work out to tens of thousands of dollars by retirement — the exact figure depends on your balance and timeframe, but the direction is never in doubt. Very few financial choices offer that kind of leverage for so little effort, which is exactly why it's worth the short time it takes to check whether your fund stacks up.

What are the five things to compare?

When you compare funds, five things matter more than the marketing. Fees come first, because they're the most controllable factor and a permanent drag on your balance: look at the total — administration fees plus investment fees plus any others — and remember that, all else being equal, lower fees mean more of your money stays yours.

Long-term net performance is second, and the key word is long-term: compare returns after fees, over five to ten years, for a comparable investment option — not one standout year. Past performance is never a guarantee, but persistent underperformance is a genuine red flag. Helpfully, APRA now runs an annual performance test that assesses each MySuper product against a benchmark and flags those that underperform, so a fund that has failed it deserves a hard look (APRA, https://www.apra.gov.au/annual-superannuation-performance-test).

The other three round out the picture. Investment options matter — does the fund offer choices that suit you, from growth to conservative, indexed to ethical (our article on choosing an investment option goes deeper)? Insurance matters too — most funds provide default life, disability and sometimes income protection cover, and you should weigh its cost and whether it suits you. And services — the quality of the retirement income options funds must now offer, plus advice, online tools and member support, all of which matter more as you approach retirement.

What tools make it easy?

You don't have to do this from scratch. The Government's YourSuper comparison tool, accessed through the ATO and myGov, lets you compare MySuper products side by side on their fees and net investment performance, using data supplied by APRA, and it labels each product as "Performing" or "Underperforming" against the annual performance test (ATO, https://www.ato.gov.au/calculators-and-tools/super-yoursuper-comparison-tool). It's an independent, ad-free starting point. MySuper, by the way, is the simple, low-cost default super product most funds offer; if you actively pick your own investment option instead, you're in what's called a Choice product. For the finer detail, a fund's website and its Product Disclosure Statement set out exactly what you're getting.

How do you switch safely — and what mistake should you avoid?

Once you've settled on a fund, moving is usually straightforward: you consolidate your accounts into the one you've chosen, which also saves you paying multiple sets of fees (ASIC MoneySmart, https://moneysmart.gov.au/how-super-works/consolidating-super-funds). But there is one mistake that catches people out, and it's an expensive one: switching away from a fund can cancel the insurance you hold inside it. If your health has changed since you first got that cover, you might not be able to re-qualify for it elsewhere — so always check what insurance you'd be giving up before you switch, along with any exit fees. Our articles on switching and consolidating go through the steps.

What do the worked examples show?

These show the choice at two life stages — the mid-career switch and the retiree picking a pension provider. They are illustrative only, not personal advice.

Consider David, 45, who checks his myGov and discovers he's been in his first employer's default fund for twenty years, paying above-average fees, and that on the YourSuper tool it's flagged "Underperforming" against the performance test. On these facts he has a strong case to compare alternatives on fees and long-term net returns and consider moving — but before he does, he should check the life and disability insurance he holds inside the fund, because switching can cancel it and, if his health has changed, he may not re-qualify elsewhere (ATO, https://www.ato.gov.au/calculators-and-tools/super-yoursuper-comparison-tool). On these facts it is generally rational for someone in David's position to use the YourSuper tool as a starting point, weigh fees and long-term performance first, and check his insurance before switching.

Now consider Margaret, 66, who is about to retire and move her super into an account-based pension. On these facts her decision is not only about who grew her money best while she was working: she is also choosing where her retirement-phase account will live, so she should weigh the fund's retirement income offering and its pension-account fees, not just its accumulation track record (ASIC MoneySmart, https://moneysmart.gov.au/how-super-works/choosing-a-super-fund). On these facts it is generally rational for someone in Margaret's position to compare funds on their retirement-phase services and fees, and — because the insurance and pension-provider decisions can be consequential — to get personal advice if she is unsure.

How does it all come together?

So the path is simple. Find out which fund you're in and what it charges and has returned — your annual statement or myGov will tell you. Compare it on the YourSuper tool and against a couple of alternatives, weighing fees and long-term net performance first, then investment options, insurance and services. Resist the urge to chase last year's table-topper — consistency over a decade beats one hot year. If you decide to move, consolidate to one good fund, but check your insurance first. And because the insurance and retirement-phase decisions in particular can be genuinely consequential, it's an area where personal advice is well worth it if you're unsure. Ten minutes spent making sure your super is in the right place is some of the best-value financial housekeeping you'll ever do.

Sources

• ASIC MoneySmart — Choosing a super fund
• ATO — YourSuper comparison tool
• APRA — Annual superannuation performance test
• ASIC MoneySmart — Consolidating super funds