The superannuation swindle: Is it time for you to switch funds?

With the big banks under fire, and the latest data showing that industry funds are giving the best returns, A Current Affair investigates whether it’s time for Aussies to see if you can get a better deal on your super fund.

Superannuation is something that almost all of us know about. Most of us are paying into a super fund that in an ideal world will help fund our retirements. But very few of us think about it regularly, question the return rates and fees we are paying, much less consider changing funds.

In the wake of the Royal Commission into Banking, this years’ damning Productivity Commission report on the superannuation system and recent data from SuperData on the top performing super funds — retail funds which are run by big banks and the likes of AMP are feeling the heat for providing their customers with worse annual returns on their funds, while charging higher annual fees.

And now, A Current Affair has investigated whether we should be looking more closely at where our super fund sits and if we are making the most out of it. Because tellingly, while most of us shop around to secure the best mortgage rate for home or car loans, but we don’t do the same for our super.

For decades many of us have put our superannuation into the major banks and AMP, thinking they’re big and safe.

Earlier this year a Productivity Commission into supernannuation showed that retail funds — which usually means ones run by the big banks — provided significantly lower returns than their industry or corporate counterparts between 2005-2016.

But the big banks and AMP are on the nose right now according to Nine Finance editor Ross Greenwood.

“The behaviour inside the big banks and the AMP in particular was all about feathering their nest egg to try and protect the money they were making,” Greenwood said.

Even the big banks themselves admitted during the Royal Commisson that their behaviour towards some of their customers had been unethical. ANZ head of lending services Benjamin Steinberg told the Royal Commission he didnt believe the banks behaviour had been fair and ethical. And while senior figures at big banks and AMP have issued public apologies — is it enough to win back customer trust?

Millions of Australians have their Super Funds with AMP, and many of them will be left wondering whether they should be switching from a retail fund or not, particularly if they have been in the workforce for many years. And if they did switch funds, the concern of whether their money would be safe elsewhere is likely to be high on their minds. 

That very question of whether to switch from a big bank fund to smaller, industry fund was one that plagued Andrew Geary.  A Chef, Geary has for a quarter of a century had his super fund with AMP, and recently switched to his industry fund, HostPlus.

“I think I was a bit scared to leave AMP to be honest with you,” Geary told A Current Affair.  “I don’t know why. I was just a bit scared because you’re with a big company and you’re scared to move your money it’s your retirement money,” he explained.

“I really wasn’t happy for a long long time they didn’t seem to care,” Geary said of his experience with AMP.  But making the switch has made a big financial impact.  “From AMP to Hostplus I save about $800, each year in fees,” Geary told A Current Affair.

New data from SuperRatings (below) shows for the first time since the GFC, long term performance — including returns — of all super funds. And the big banks and AMP paled in comparison to the better performing Industry Funds like HostPlus.

Paul Watson from Hostplus told A Current Affair that industry funds like his have outperformed the big players — the retail funds — mainly because they have lower fees.

“We don’t exist for a profit margin or profit motive for shareholders,” Watson said. “We are for member profit only all the returns we earn after the modest cost to run the fund go straight into members accounts we pay no commissions to advisors or others and so all that we earn we return to members,” he explained.

Greenwood explained that the compounding effect of saving a little each year in fees can be enormous in the long term.

“For a typical person who might end up making say $100,000 a year — which is typical these days — that person if there’s a 1% difference in the funds’ performance — that’s worth $200-300,000 to the end result in their superannuation pot,”

Bessie Hassan from comparison site Finder told A Current Affair that this is simply too much money to let sit in the wrong fund.

“It is quite easy to switch funds and we recommend you review your superannuation policy at least once every twelve months,” Hassan said. “There might be some exit fees to keep an eye out for but keep in mind these will be offset by cheaper fees in the long run.”

And Industry funds say your super is just as safe with them as a big bank. “The vast majority of Australians are in industry funds retail funds or corporate funds that are well regulated by our national regulator APRA,” Watson said. “Most Australians can be confident that the system is well run well-structured and looking after their retirement savings.”

Greenwood explained that it’s important to approach all funds with a level head, telling A Current Affair that there’s the argument that the unions control Industry funds, and those funds do sometimes give out donations to unions. However, Greenwood explained that any behaviour like this will again come out through the Royal Commission over the next few weeks.

“One thing you know is because they are owned by the members because there is not the profit motive to reward the shareholders it means members get lower fees and therefore better performance,” Greenwood said.

And you no longer need to be working in that industry to join a particular fund. “Most of the large industry funds these days are what’s known as public offer so anyone could choose to join a fund such as Host Plus,” said Watson.

The big guys are starting to feel the pressure. BT Financial, wholly owned by Westpac, has just announced it’s lowering some fees.So it seems that if Aussies don’t want a retirement struggling on the old age pension, then those in the know say we need to step up — like we have with our mortgages and personal loans — and take control of our super.

9Saver’s 5 Things You Should Know About Your Super Fund

  1. What is superannuation? We all have super, but what is it, and why is it such a big deal? Super is a tax effective way to help us save for our retirement. Your money is pooled with other members’ money, and invested on your behalf by professional investment managers. Your employee makes contributions to your super fund, and you can also top it up with your own money. The government may also help you out if you’re a low income earner.
  2. How do you choose the best super fund? Usually you can choose which super fund you would like your super contributions paid into. You can check with your employer to make sure you can nominate a super fund. There are super comparison websites to help you compare the best funds. You should look out for a super fund with low fees, a number of investment options, and extra benefits. You should also look at funds that have been performing well over the last five years.
  3. How do you get your super? You cannot withdraw your super until you reach preservation age, which is between 55 and 60 depending on when you were born. You must also be transitioning to retirement or retiring completely to access these funds. You then need to consider whether you should take your super as a lump sum, or roll it over into an income stream.
  4. How can you grow and boost your super? By making extra contributions, you will boost your super for when you stop working. You need to consider that you may/hopefully will live for many years after your retirement, and your money needs to last. Combine this with the cost of living increasing over time, and age pensions alone not providing enough money to live a comfortable life, it’s clear you need to find ways to boost your super as early as possible.
  5. Should you have a managed fund? If you would prefer to invest outside of superannuation and have a  professional to make your investment decisions, a managed fund may be your best option. In a managed fund, your money is pooled together with other investors, and an investment manager buys and sells shares or other assets on your behalf. The value or your investment will rise or fall depending on the value of the underlying assets. The plus is you can withdraw your savings whenever you need them, however you don’t get the same tax benefits that you enjoy through superannuation.

SOURCE: ASIC’s MoneySmart

* In highlighting particular offers we are not making specific recommendations as this article does not cover all available products and may not compare all features relevant to you. Any advice provided is general in nature and does not take account of your needs, objectives or financial situation. Individuals should consider their own circumstances, and if in doubt seek appropriate advice, before proceeding.

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