How to choose a super fund

There are four broad kinds of fund, and the historical differences between them matter less than they used to. Industry funds were set up by unions and employer groups for particular sectors and return profits to members. Retail funds are run by banks, insurers and investment managers. Corporate funds are run by or for a single large employer. Public sector funds cover government employees and sometimes carry defined-benefit arrangements that work quite differently.

Cutting across all of them is the distinction that actually matters day to day: MySuper products versus choice products. A MySuper product is the regulated default. It must be a single diversified investment strategy (or a lifecycle strategy that de-risks with age), it has capped fee structures, and it is the product APRA tests and publishes comparable data on. A choice product is anything you actively select instead — a specific investment option, a platform, a direct share option.

For most people the MySuper product is the right destination and the comparison is genuinely apples to apples. The published data is standardised, so a MySuper net return from one fund means the same thing as a MySuper net return from another.

Self-managed super funds are a different proposition entirely. An SMSF makes you the trustee, with the legal duties, audit obligations, annual return and administrative cost that come with running a regulated entity. Moneysmart's guidance is blunt about the fact that SMSFs carry fixed running costs that do not scale down, which makes them poor value at smaller balances, and that trustees carry personal legal responsibility for compliance. If your reason for wanting one is 'I want to invest in property', get advice before you act, not after.

Defined-benefit funds, still common in some public sector schemes, pay a retirement benefit calculated by formula from your salary and years of service rather than from investment returns. If you are in one, the entire fee-and-return comparison in this guide does not apply to you, and leaving it is usually a serious decision that warrants advice.

Start with the ATO's YourSuper comparison tool. It ranks MySuper products side by side using regulator-supplied data on fees and net returns, which removes the fund's own marketing from the equation entirely. It is the single most useful screen available and it takes about five minutes.

The metric to sort on is net investment return after fees and taxes, measured over the longest period available — typically seven to ten years. One-year returns are close to noise. A fund can top the annual table because its investment option happened to be heavily weighted towards whatever asset class ran hard that year, and be nowhere near the top over a decade.

Read fees as a single combined number rather than a list. Administration fees, investment fees, indirect cost ratios and transaction costs all come out of the same balance. What you want is the total annual cost on a balance similar to yours, because some funds charge a flat dollar administration fee that is trivial on a large balance and punishing on a small one, while others charge purely as a percentage.

Then check that you are comparing like with like on risk. A 'balanced' option at one fund can hold a materially different growth allocation from a 'balanced' option at another — the labels are not standardised. Look at the stated growth-versus-defensive split, not the name. A fund that beat its peers with 85 per cent growth assets did not necessarily do a better job than one that nearly matched it with 65 per cent.

Finally, sanity-check the investment option you are actually in, which for most people is whatever the default was. Someone in their twenties sitting in a conservative option is giving up decades of compounding growth for volatility protection they do not need. Someone five years from retirement in a high-growth option is exposed to a sequencing risk that could be very expensive at exactly the wrong moment. Moneysmart's superannuation calculator lets you model the difference rather than guess at it.

Do not choose on the basis of ratings-house awards. Those are commercial products, funds pay to participate in many of them, and the methodologies differ. The regulator's data is free and neutral.

APRA runs an annual performance test on MySuper products, measuring each one's net investment return against a benchmark constructed from its own stated asset allocation. The point of benchmarking against the fund's own allocation is that it isolates whether the trustee added value, rather than simply rewarding whoever happened to hold the year's best-performing asset class.

A product that fails must write to its members and tell them. A product that fails twice in a row is closed to new members and generally has to merge or wind up. That consequence is why the test has done more to clear out chronic underperformers than a decade of disclosure requirements did.

The test is a floor, not a ranking. Passing it means a product is not egregiously bad relative to its own benchmark; it does not mean it is good, and it certainly does not mean it is the best available for you. Plenty of products pass comfortably while sitting in the bottom half of the net-return table.

It also does not cover everything. The test applies to MySuper products and certain trustee-directed products, so if you have actively selected a niche investment option you may be holding something the test does not reach. And it is backward-looking by construction: it tells you about the past eight years of trustee decisions, which is informative but not a promise.

The practical use is as a screen rather than a selector. If your fund has failed, that is a strong signal to look elsewhere. If it has passed, move on to comparing net returns and fees, which is where the actual differences between decent funds show up.

APRA also publishes quarterly superannuation statistics covering the whole industry, which is the place to look if you want to see how fund-level fees and returns are distributed rather than just where your own fund sits.

Most default super accounts include life cover and total and permanent disability cover, and many include income protection. It is issued on a group basis, which means it is generally cheaper than an equivalent retail policy and — critically — usually issued without individual medical underwriting.

That last point is the whole risk. Group cover inside super is one of the few ways a person with a serious pre-existing condition can hold meaningful life or disability cover at all. If you close that account, you do not simply move the cover across. You surrender it, and any new cover you apply for is assessed on your health as it is today.

So the order of operations is fixed: work out what cover you hold and on what terms before you touch the balance. Your annual statement lists the sums insured and premiums. If you cannot find them, ring the fund and ask for the insurance schedule.

If the cover is worth keeping, you have two options. Keep the old account open with a small balance to maintain the policy — accepting that fees and premiums will erode it — or apply for and be accepted into equivalent cover at the new fund before rolling anything over. Never do it in the other order.

The mirror-image mistake is holding the same default cover across three or four forgotten accounts, paying four sets of premiums for benefits that in some cases will not all pay out. This is the main reason consolidating accounts is worth doing, and it is why the ATO's account list inside myGov is the natural starting point.

Insurance inside super also has an inactivity rule: cover on an account that has received no contributions for an extended period can be switched off unless you have elected to keep it. People discover this at the worst possible time. If you are keeping an old account purely for its insurance, tell the fund in writing that you want the cover maintained.

Open the new account first. Applying takes ten minutes online and you will need your tax file number — supplying it is not compulsory, but without it the fund must apply additional tax to contributions and cannot accept after-tax contributions.

Sort out insurance before any money moves, using the checks in the previous section. If you need cover at the new fund, get the acceptance in writing before you roll anything over.

Then redirect the contributions. Give your employer a standard choice form nominating the new fund. Until you do this, your employer keeps paying into the old one, and a rollover does not change where future contributions go. This is the step people most often skip, and it is why some people end up with the exact duplicate accounts they were trying to eliminate.

Roll the balance across last. The simplest route is through ATO online services in myGov, where every account reported in your name appears in one list and a transfer can be requested in a few clicks. Alternatively the new fund can initiate the rollover for you.

Check for exit costs first. Most funds no longer charge exit fees, but a buy-sell spread — the cost of the fund selling assets to release your money — can still apply, and defined-benefit or older retail products sometimes have their own charges. The fund's product disclosure statement sets these out.

Understand what happens to the money in transit. A rollover means your balance is out of the market for a short window, usually a few business days. That is normally immaterial, but it is a real risk if markets move sharply, and it is a reason not to time a switch around a moment you feel strongly about.

Once the transfer lands, check the new account shows the full amount and that your employer's next contribution arrives in the right place. Then close the loop by confirming the old account is actually closed rather than sitting at a zero balance still charging a monthly fee.

Switching is not automatically an improvement, and there are situations where the honest advice is to leave it alone.

If you hold insurance inside the fund that you could not obtain again on reasonable terms, the value of that cover will usually swamp any plausible fee saving. Health changes are not reversible; a fee differential is.

If you are in a defined-benefit scheme, your benefit is calculated by formula and is not affected by investment returns in the way an accumulation account is. Leaving one is a decision to swap a largely known outcome for an unknown one, and it deserves licensed financial advice rather than a comparison table.

If your fund passed the performance test and sits in the middle of the pack on ten-year net returns, the gain from moving to a slightly better fund is real but modest, and it is not worth doing badly. Doing it badly — losing cover, leaving contributions going to the old fund, triggering unnecessary costs — is easy.

And if you are within a few years of accessing your super, be careful about changing investment option at the same time as changing fund. Two variables at once makes it impossible to tell later which decision worked.

What is never a reason to stay is inertia, or a belief that the fund your employer picked must have been vetted for you. Employers choose a default fund for their own administrative reasons; they are not acting as your adviser.

Complain to the fund first and in writing. Every superannuation trustee must have an internal dispute resolution process and must respond within set timeframes. Keep the reference number.

If the fund does not resolve it, take it to the Australian Financial Complaints Authority. AFCA is free for consumers, its determinations are binding on the fund, and its jurisdiction covers fees, delays in rollovers, poor administration, insurance claim declines and the distribution of death benefits. It is a genuinely effective avenue and it is under-used.

Unpaid employer contributions are a different problem with a different owner. That is an ATO matter, not a fund matter, and the ATO has recovery powers the fund does not.

Watch for the two scams that specifically target super. The first offers to help you access your balance early for a fee; every version of this is illegal, and you end up paying tax, penalties and the promoter's cut. The second is a cold call offering a 'free super health check' or a 'better performing fund', which ends with your balance rolled into something unsuitable and a commission paid. ASIC's Moneysmart maintains warnings on both, and a legitimate adviser will hold an Australian financial services licence you can verify on ASIC's registers.

If you are considering personal advice, note that many funds offer limited advice about your own account at no additional cost, funded from fund reserves. That is a reasonable first stop for questions about contribution levels or investment option, and it costs you nothing beyond what you already pay.