- With mandatory contributions from your employer and optional personal contributions, superannuations help you grow your wealth and prepare for retirement.
- Super funds are managed funds that pool your money, invest in growth and defensive assets and compound and reinvest your capital gains.
- Some super fund investments have recently outperformed industry averages but dipped again as of May 2022.
Superannuations invest your money for you and are compulsory for all Australians earning more than $450 per month, but you can choose which fund your money goes to. Some super funds greatly outperform others, so choosing the right fund can impact how your super grows.
This article outlines how to compare and choose super funds and reviews some of the best-performing super funds.
Types of Super Funds
The primary difference between industry, retail and ethical super funds is how their profits and investments are managed. Industry super funds are membership-based, meaning they return profits to members rather than shareholders. These funds are generally open to the public but may be exclusive to members of certain industries.
Retail super funds are run by banks, investment companies and other financial institutions. Although technically designated non-profits, retail super funds pay profits to shareholders. Most people can become shareholders.
Ethical super funds focus investments on ethically responsible companies and industries. They invest in companies that have environmental, social or other beneficial values and exclude harmful industries such as tobacco.
Super funds carry different risk levels depending on the type of assets built into the fund. The ideal risk level for each investor depends on their age, timeframe and other factors. The main super funds’ options are:
- Growth: The most aggressive option, best suited to investors with the capacity to ride out volatile periods. Investments are about an 85% mix in growth assets and 15% in defence assets.
- Balanced: Investments are more evenly mixed, with about 50% to 70% in growth assets and 30% to 50% in defensive assets. They provide reasonable returns with less volatility than growth funds.
- Conservative: Investments are focused mostly in fixed interest and cash, creating lower returns but protecting money against inflation.
Superannuation Funds Outperforming Industry Average
Over 2021 and 2022, super funds have seen moderate volatility. Growth funds finished the 2021 fiscal year with an 18% average return,1 compared to the industry average of 8.4% over the last 10 years. With inflation growing only 2.82% in fiscal year 2021, that translates to a 15.18% return over inflation.
All risk category returns fell as of April 2022, with all but conservative funds remaining in positive growth. Overall, all risk categories have had high returns over the last 15 years.
How to Grow Your Wealth With Super Funds
Superannuations are a way of saving for retirement and growing wealth. Employers pay 10% of your salary into your super account, and your super fund invests money until you retire. If you’re self-employed, you can optionally contribute to a super fund. You can also make additional contributions to your super fund, access government co-contributions and enjoy certain tax deductions and benefits.
Super funds work similarly to mutual funds. They pool your money with other investors, and then invest according to the fund’s strategy. Depending on how the super fund performs, investors earn income paid into their account as a crediting rate. This income is reinvested, compounding returns over time.
Super Funds vs. Self-Managed Super Funds
Self-managed super funds are an alternative way of managing your superannuation. Rather than a super fund that manages your contributions for you, an SMSF means you’re in charge of investment decisions. However, that also means you’re responsible for complying with super and tax laws to avoid severe penalties and tax consequences.
Investment decisions for the SMSF must be in the best interest of all members. Setting up and managing an SMSF incurs several ongoing costs, which may cost more than typical super fund fees.
How To Choose, Open and Manage a Super Fund
Most people start with a default super fund appointed by their employer or the government when they get their first job. If you’re not satisfied with the growth of your current super fund, you can change or move it to a better-performing product.
Super funds generally only require online sign-up and personal details such as your Tax File Number and your employer’s ABN. Before signing up, review the fund’s long-term performance, service fees and available support and services.
You can easily manage your super on the myGov portal.2 Notify your employer if you change your super fund and ask if switching affects their contribution amount. Check for any other variables such as insurance coverage or rules preventing you from transferring between accounts.
Superannuation Guarantee Rules and Responsibilities
Employers are generally required to make minimum contributions, called Super Guarantee contributions, to your super account. The current SG rate is 10%3 of regular employee earnings, but this rate will increase by half a percent each year until it reaches 12% in July 2025. Some awards or employment agreements entitle employees to higher super contributions. SG contributions are usually mandatory for employees who:
- Earn $450 gross or more per calendar month
- Are 18 or over or who work at least 30 hours per week
- Are employed on a full-time, part-time or casual basis
UniSuper Balanced Fund
The UniSuper Balanced4 fund is an investment option with exposure to a range of asset classes, including domestic and international shares, private equity, property and fixed interest. Defined as high risk, investments in this super fund are likely to fluctuate over time. As such, UniSuper recommends a minimum 10-year timeframe. It charges 0.44% for investment and transaction fees.
This fund has performed at 9.15% growth over the last 10 years and 2.54% over the last year.
Hostplus Indexed Balanced Fund
The Hostplus Indexed Balanced5 fund features low investment fees at 0.08% and diversified investment options, with 75% allocation to growth6 and 25% to defensive assets. It’s suited to individuals with a 5-year investment timeframe and allocates a significant portion of investments to listed equities, fixed interest and cash.
Over a 10-year period, the Hostplus Index Balanced has resulted in a 10.15% return. At the end of fiscal year in September 2021, this super delivered an 18.46% yearly return.
AustralianSuper Balanced Fund
The AustralianSuper Balanced7 fund invests in a wide range of pre-mixed defensive and growth assets, including shares, private equity, property, infrastructure, fixed interest and credit. As of May 2022, allocations are weighted 75.3% growth and 24.7% defensive. Short-term investments in this fund are designated high risk with medium fluctuations, with risk levelling off on investments past 5 years.
This fund delivered a 10.44% average growth performance over the last 5 years but experienced a negative return over fiscal year 2021 with a -0.83% return.8
Cbus Growth (MySuper)
The Cbus Growth (MySuper)9 fund is available to members of all industries and is committed to environmentally and socially conscious investments. With a 72% allocation in growth assets such as domestic and international shares, property, fixed interest and alternatives, Cbus Growth (MySuper) also offers low administration and investment fees at 0.19% and 0.51%, respectively.
This fund has delivered consistent performance, with 9.5% average growth over the last 10 years and 7.3% in the 2021 fiscal year.
VicSuper FutureSaver Growth Fund
The VicSuper FutureSaver Growth10 fund is a socially and environmentally conscious fund with 75% allocation to growth assets. Asset allocation is mainly focused on international equities11 but includes a significant portion of Australian equities. Investment fees range between 0% and 1.02%, depending on your investment option, and administration fees are 0.15%.
The VicSuper FutureSaver Growth fund has delivered approximately 6% capital growth return over 10 years and -0.5% over the 2021 fiscal year. It carries relatively high risk and may occasionally incur negative yearly returns over a 20-year period.