A Comparison on Superannuation Funds in Australia

[Mara]

I have always suggested going with an Industry Fund for your super, I especially like Australian Super.

You also have the Bank/Insurance company funds, who quite honestly, I feel are just there to make money out of you.

We have personal experience as hubby was stuck in one of those, before you were allowed to choose your own superfund.

 

I subscribe to the "Barefoot Investor" and this was his take, on it, gives you some food for thought and explained in a way that I never could!

 

Are you looking for Australia’s biggest and best super fund?
Well, that’s what we’re going to cover today.
You see, the front page of the Australian Financial Review this week said that NAB is the new king of super, claiming the bragging rights of Australia’s biggest retail super fund.
It’s a fair bet that either you, or one of your family, or at least one of your ex-boyfriends, is with NAB.
Now I wouldn’t be doing my job if I didn’t do a road-test on Australia’s biggest retail super fund. So buckle up (because I’m also going to show you how to make $31,203).

Guaranteed.

The Holden Cruze of Super Funds

NAB’s super offering (from this week, branded as ‘MLC Super’) is the financial equivalent of a Holden Cruze.
No-one consciously chooses a Holden Cruze.
It’s just the car that the bored middle-aged woman behind the counter of Budget rent-a-car hands you the keys to. The Cruze is a car that’s foisted upon you. Eventually you’ll get a better one, but right now, well, who gives a toss?
That explains NAB’s super offering right there.
No-one actually does independent research and chooses a NAB fund.

That’s because their performance over the years has been, well, Cruze-like.
According to SuperRatings, over 1, 3, 5 and 7 years, it’s come in near the back of the pack.

That perfectly explains NAB’s hierarchy of needs, which are as follows:
1. NAB.
2. NAB Funds Management.
3. NAB Financial Planner.
4. NAB Banking (investment loan, mortgages, and credit cards referrals).
5. Client.

 

Holden versus Ford
Yet rather than just kick the tyres and drive around the block, I thought I’d line it up in a proper drag race against Australia’s biggest super fund.
Hang on, didn’t I say NAB was the biggest?
No, there’s a difference. NAB has been crowing about being the biggest retail super fund (which means it’s run by a financial services company for profit).
The biggest super fund is AustralianSuper, which is an industry fund (i.e. not for profit). It manages $100 billion on behalf of more than 2 million members.
Retail funds have been battling industry funds for years (a real Ford vs Holden battle).

Up until now, industry funds have been out in front, mainly thanks to their lower fees.
Still, the entire industry is as seedy as a night at the dishlickers: Australians are still forking out some of the highest super fees in the world - between 2004 and 2013 the cost of the average fund fell from just 1.4% to 1.2%, even though the total super pool grew from $625 billion to more than $1.6 billion.

To look at, there’s not much difference between our NAB and AustralianSuper contenders. We’re looking at the ‘balanced’ model for each, which means you’ll get a mix of shares (both Aussie and International), a bit of property, and some bonds and cash.

 

Where they differ is the sticker price.

 

AustralianSuper is the poverty pack.  You’ll pay an investment fee of 0.57% (which gets the Barefoot rating of “meh” as it’s not the lowest in the market -- not by a long shot), plus a $1.50 per week admin fee. Anyway, on a balance of $50,000, that’s costing you $363 each year.

Now for NAB …

Their cheapest option will set you back $623 per annum on the same $50,000 balance.

Next in line is their mainstream model (with leather trim), called ‘MLC Masterkey Fundamentals’, which ups that slightly to $630.

Or, if you’re unlucky to be stuck in one of MLC’s older funds (but still called ‘Masterkey’), get ready to fork out $1,033 in fees every year on a $50,000 balance.  
If you (or your dad or your uncle) are still in that fund, then somewhere along the line a NAB salesperson took your boss to the corporate box at the footy and got them on the squirt -- in exchange for signing up his entire staff up to a stinker of a corporate super fund.
But maybe that’s about to change ...
“National Australia Bank is combining five of its superannuation funds to create the country's biggest retail fund, promising to share cost reductions from the merger with its 1.3 million super members” said the newspaper this week.
Huh?

“Promising to share cost reductions?”
That didn’t sound very banklike, so I rang up NAB and asked them “specifically how much are you sharing?”
“The majority of our Corporate Super members will receive a 0.04% reduction to their fees… that is the equivalent of $20 per annum on a $50,000 MySuper account balance” said the NAB spokesperson.
That sounds more like it!

 

The $31,302 Car Crash

When it comes to cars it’s not the driveaway cost that slugs you, what you really need to focus on is your running costs, over years and years and years …  it’s the same with super. Let me explain.

 

Take a kid -- let’s call him Freddy Falcon -- with $10,000 in AustralianSuper.

He’s earning $60,000, and keeps his nose to the grindstone for the next 40 years.

When he retires his super balance will be (based on very, very conservative projections)...  $286,517 in today’s dollars.

 

His mate -- Harry Holden -- has the same $10,000, but he goes with MLC MasterKey Super Fundamentals.

He earns the same as Freddy, and works just as long.

And when he clocks off at 60, he’ll pocket $255,314.  

 

In other words, despite being in a balanced fund just like Freddy, he’s $31,203 worse off.

Struth!  

That’s enough savings to buy you a Holden Cruze… though I wouldn’t recommend it.

Edited July 18, 2016 by Mara

[rozellem]

Thanks for that Mara. 

 

ps. I have a close family member who contracted for NAB for a year or so.  Shall we just say their relationship ended after this person repeatedly pointed out that the Emperor was in fact not wearing a stitch.  Nobody in my family will touch that bank with a barge pole. 

[Eyebrow]

The supers seem to have different options. Low risk, medium risk and high risk. I got the default one which is low to medium risk. Does anyone know which is best to choose?

[ottg]

There is a direct relationship between risk and return. When the market is in turmoil I'll switch to cash, and when the market is in a upward trend I'll switch to high risk. So even with a managed fund you should not stay with one option. When to switch; everyone has there own rules but the easiest is to use a 30 day and 90 day moving average and check when the lines cuts the market trend line. Then act accordingly.

[Mara]

I have done something similar to Ottg. The problem is, and not sure if it is still true, you have to have at least $10,000 in your super before you can make these choices.

[BrendanH]

21 hours ago, Eyebrow said:

The supers seem to have different options. Low risk, medium risk and high risk. I got the default one which is low to medium risk. Does anyone know which is best to choose?

 

I am not a financial planner but this is a general rule that was explained to me.

 

When you are young you want to invest in the riskiest and more volatile but potentially most rewarding investments but as you get older you want to start lessening your exposure to risk. So up to the age of about 45 want a high risk investment but from that point you want to start looking at a medium to low risk. The idea being that when you are 5-10 years away from retirement a 10% knock to your investments will hurt, but if you are 40 years from retirement you can take the short term hits for the potential to earn a lot more in the longer term.

 

 

[Eyebrow]

Do people invest in things other than super as well?

[Mara]

@Eyebrow you can create your own superfund, but there are rules controlling it, which I know nothing about. As I am not a financial expert, I prefer to leave it to those who know what they are doing.

[RYLC]

15 hours ago, Eyebrow said:

Do people invest in things other than super as well?

 

There are lots of things to invest in: shares, property, managed funds (similar to unit trusts in RSA).

 

I'd suggest you sign up for the newsletter of Barefoot Investor and read his advice to reader questions.  You'll soon see a pattern to his advice.  You might even want to write in as he keeps it all anonymous.

https://barefootinvestor.com/

 

The other newsletter of interest is Noel Whittaker.  He discusses superannuation from the "almost at retirement" end of the deal. https://www.noelwhittaker.com.au/

 

[Eyebrow]

What concerns me is that we are mid forties, and likely to have a child that is long term dependent on us. We used most of our money to get here, pay lawyers and moving fees etc. Our money was all in our house in rsa and that sold at a loss, because we couldnt get a buyer and there was a major crack running through most of the house due to some building fault. My business was also sold at a loss and I broke lease on business property. Looking back I would have all done it differently. But hindsight is 20/20. 

Before planning to come to Aus I tranfered some money to an UK account, thinking it would be more stable than the Rand. But the interest rate dropped to 0% during the GFC and because the account turned dormant, I couldnt move the money from outside the uk. And then Brexit. And now the pound is declining! Who knew?

So now it is panic stations ito retirement. I have no skill in terms of finances and even less so here in Aus.

I pay into the work's recommended super, and that is it. But the calculator on their website seems to think I have to work until 85y just to maintain current lifestyle!!!

 

So I suspect we are in big number 2...

[ottg]

 

47 minutes ago, Eyebrow said:

So now it is panic stations ito retirement. I have no skill in terms of finances and even less so here in Aus.

Send me a PM and I can share what I know

[BrendanH]

@eyebrow - have you upped your contribution into your super? 

 

We are also in a less than ideal position with regards to retirement savings so we deposit an extra 9% into ours. Sacrificing our lifestyle now to catch up for 15 years of lost savings.