Australia’s cheapest superannuation fund…
What is Australia’s cheapest super fund?
Is the cheapest usually the best? Superannuation should be focused on delivering retirement outcomes to members, and payments to dependents upon death. Yet this is very rarely the case. There are so many biased opinions competing for airplay that it can be very difficult for a super fund member to gain understanding of their superannuation accounts – which might help explain why so few people pay more than scant attention to their superannuation balances. The cost of running a super fund is an extremely important component of analysing super accounts BUT it is only one factor, and makes little sense if it is not part of a more complete investigation.
Imagine if super funds started down the retail pathway of offering to outdo any competing offer…
Fortunately, they don’t. Continuously focusing solely on price would lead to an eventual “race to the bottom” with the risk that some funds may offer a fee schedule that doesn’t allow them to provide long term stability to members.
The website “superguide.com” offers plain-talk information on superannuation in Australia. This includes a regularly updated post on the cheapest super funds in Australia. A link to the post is included later in this note. For now, i’m going to “do a Michael” and look at the information in this list from a slightly different point of view. In fact, i’m going to make a very personal observation about superannuation in Australia to try to show just how bias is not always as obvious as it would at first seem to be, and how the debate about fees can distract from other equally important issues in super.
Australia’s cheapest super fund – so what?
Firstly, did you know that the cheapest super funds are not available to most people in Australia? The reason is that these are government run super funds that are operated for specific government employees.
Why is this important? It’s important because a lot of analysts and commentators believe that the government should not be involved in areas such as running superannuation funds. The argument is that private business can be more efficient – delivering better outcomes at a lower cost. Look at the list of Australia’s cheapest super funds and you’ll realise this is simply not true.
Secondly, there are a number of retail funds that are every bit as cheap as “industry funds”. That’s not what you expect when you listen to advertisements from the industry fund lobby.
Thirdly, a simple fee comparison does not allow you to determine whether you are getting value for money for whatever fees you end up paying.
An example would be to look at the spread of investments and expertise involved in the default fund for Australia’s largest super fund – AustralianSuper. This industry fund has the scale to offer an extremely high level of diversification and the money to buy good advice on where to invest its members’ money. i’m not making any sort of recommendation for AustralianSuper here (remember the Great Disclaimer **) but i would have no difficulty putting together a valid argument that AustralianSuper’s higher fees are justified over some of the cheaper funds. You would be right to say that this is an unsupported argument. However, these are my musings and my opinion, so i’m comfortable to leave it that way. If you want to investigate the matter further then i’d suggest you spend time looking at asset mixes, business cashflows and sustainabilties, and investment option diversification as a starting point. For now, i’m just going to suggest that cheapest fees does not usually equate to a good range of options.
Fourthly, the term “fees” is usually limited to investment and administration fees. Insurance is not part of that standard fee analysis.
Insurance is a BIG issue in superannuation. Costs can vary enormously, and it’s very difficult to know when businesses are “buying” you with unsustainably low premiums. This has played out in recent times, with many insurers having to make large changes to their premiums for a whole host of reasons.
Australia’s cheapest super fund hasn’t happened yet..
Some time ago, i argued that mandated super contributions would be best placed in a national super scheme that provided a fixed income crediting rate. That would enable the cheapest possible super fund for all those people who are disinterested in their super.
Once a person became interested enough to do something about their super (in my experience this is when the super account balance becomes materially greater than a years’ salary or income) then they can seek advice or do their own investigation of the options available. Industry funds, retail funds, employer funds or self managed super fund marketers could all then compete on equal terms to offer a mix of services and costs. But that’s not going to happen.
It’s my soapbox but after years of watching ridiculous public arguments for this or that super fund, this particular financial planner still finds it frustrating to see that public debate is being led by vested interests of one type or another. The retail fund versus industry fund versus employer fund argument filling Australia’s billboards over the past 8 years or so has been a major obstacle to common sense in this area.
So what is Australia’s cheapest super fund?
So let’s get back to the lowest cost super fund/s…
The link to superguide.com’s article can be found here. Spoiler alert! Australia Post offers the cheapest super fund in Australia – it’s just that you can’t join it (unless you are with Australia Post).
The moneysmart website provided by the government regulator ASIC also includes a note on super fees (it’s a fairly superficial look but includes links to other data). It can be found here.
** Great Disclaimer – please remember that nothing in this post or on this page is to be taken as personal advice. After all, i don’t know your financial position and you don’t know how much time i’ve been able to devote to making this post as informative as it could be! Personal financial advice can only be provided after suitable investigation into your current financial position, attitude to risk and investment, capacity for variances in outcomes, needs and wants (objectives) when considered in the light of current and expected economic conditions, legislative impacts and the likelihood of change to any one or more of those conditions. That’s a high hurdle, and one unlikely to be met through the public domain of the internet!