Performance or low fees?

What matters most to your super: performance or low fees?

A recent research report shows that most super fund members think that fees are a more important consideration than performance when comparing funds[1]. Interestingly, this changes as members get older with members over 55 ranking performance as a more important factor.

Wes Hatch, AustralianSuper Senior Product Design Manager, explains: “While fees are an important part of the performance equation they’re not the be all and end all.

“While some funds might have lower fees, they might not perform very well. Likewise, going with a fund that charges high fees doesn’t mean you’ll get the best performance.”

There are lots of funds out there advertising low fees, but how do you know what you’re really getting for your money?

Measuring value

One way to measure the real value you’re getting from your fund, is to look at the 'net benefit.'*

The net benefit is basically your investment earnings, after any fees and taxes have been taken out. It’s calculated based on historical returns.

As the net benefit has all the fees and taxes taken out, it gives you an indication of the real value your super fund is adding to your retirement savings. After all, the higher the net benefit, the more super for you.

This graph shows how much better off a member in AustralianSuper’s Balanced option would be after 10 years compared to a member in the average fund, with various assumptions on the member’s starting super balance and annual income.* As you can see the AustralianSuper member has an ending balance of $154,853 compared to the member in the average fund who has $140,415. The difference between the two balances of $14,438 comprises AustralianSuper’s higher earnings of $9,459 and lower fees of $4,979.

 

Investing to make your retirement savings last longer

[1] Influences when making superannuation choices, September 2017 – Industry Super Australia/UMR Strategic Research

Comparing apples with apples

There are a number of factors which contribute to the fees a fund charges, and its long-term net returns. Two of the most important are the investment mix (what the fund invests in) and the investment approach (how it invests).

“Some asset classes cost more to invest in than others. For example, infrastructure and property cost more than cash. But there are good reasons for this – they give you the potential to earn higher long-term returns, and you also gain diversification benefits.” adds Hatch.

AustralianSuper aims to keep costs as low as possible, given the aim of extracting the best possible performance outcomes for members. This means investing in a broad range of quality assets across shares, property, infrastructure, private equity, bonds and cash. We also take an active approach to managing assets, and use our scale to lower costs and structure investments in the most effective and efficient way.

Active management means we aim to outperform our competitors at the total portfolio level, and also aim to outperform the market return for each asset class. This is a different approach to an index fund, which typically charges lower fees but aims to match the market return.

“We’ve been doing a lot of work behind the scenes to improve net benefit outcomes for our members. One of the most significant, is our internal management program, which is helping to lower costs and improve the net returns. In 2016/17, internal management added an extra $100 million for members through good performance, cost savings and doing things more efficiently."

The Balanced option returned 13.59% against the median option’s return of 10.72% for the year, and 11.11% against the median option’s return of 9.66% for the five years to 31 December 2017.†

The Balanced option for retirement income accounts returned 14.88% for the year, and 12.36% for the five years to 31 December 2017.‡

It’s important to remember that these returns are after taxes, administration and investment fees and costs. So, while fees are important, they’re only half of the story. It’s the net return you get to keep that makes the biggest difference to your retirement outcome. 

 

*Comparisons modelled by SuperRatings, commissioned by AustralianSuper. Modelled outcome shows 10 year net benefit of the main balanced options of AustralianSuper and competitor funds tracked by SuperRatings, with a 10 year performance history, taking into account historical earnings and fees – excluding contribution, entry, exit and additional advisor fees – of main balanced options. Modelling as at 30 June 2017. Assumptions include: $50,000 starting account balance, $50,000 annual salary, contributions at Superannuation Guarantee rates, amounts expressed in today’s dollars.

† SuperRatings Fund Crediting Rate Survey - SR50 Balanced Index, December 2017

‡SuperRatings Pension Fund Crediting Rate Survey - SRP 50 Balanced Index, December 2017

Investment returns are not guaranteed. Past performance is not a reliable indicator of future returns.

Remainder of disclaimer is on website 

 

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