Is your super fund performing?

Earlier this month, AMP Super chairman Rick Allert was in the Royal Commission hot seat, answering questions about why some members were earning negative returns on their investments. 

"Why is it that a member who puts their retirement savings with AMP's NM Super and has those retirement savings invested 100 per cent in cash ends up with substantially lower returns than if they had just invested their retirement savings in an interest-bearing account with AMP Bank?" senior counsel Michael Hodge QC asked Allert. 

"You'd have to ask the client why they do that," Allert replied.

Allert may have been swerving the question – and arguably, his responsibilities – but he is right that you have control over the returns you get in your super fund. Knowledge is power, and we’re here to arm you.

Are you in a poor performing fund? 

There are two reasons you could be losing money in your super; the eroding impact of fees, or poor performance.

Regularly checking in on how your super fund is performing can make a big difference to your income in retirement. Performance figures will be published in your funds annual report, and most likely, on their website.

It's important to not to review a fund's investment performance in isolation. Just because your fund did well one year, doesn't mean they'll do well the next. As a fund member, you'll have to ride the ups and downs of investment performance and accept that there may well be bad years before the good.

But while past performance is no indicator of future returns, examining how a super fund performs throughout a market cycle does give you some idea of the manager’s skill. When Morningstar fund analysts review a LIC or open-end end fund for example, the long-term past performance is one of the five pillars they consider.

Super members should employ the same principle – look at your fund’s performance over five, 10, 25 years, and use those figures to compare your fund against others. Super is a lifetime investment, so short-term figures are only useful in the context on longer-term goals.

Morningstar data shows that the average balanced-option super fund – comprising between 60 per cent and 80 per cent growth assets – returned an average of 7.6 per cent a year, after fees, for the 25-year period to 30 June 2017, according to Morningstar. That's five per cent annually when you deduct inflation, referred to as the "real" return.

If your investment option has performed consistently badly after fees and taxes, relative to other comparable options over a five-year period, then you should consider switching funds.

More from Morningstar

• 2 moat stocks riding tech rally

• Top 10 articles of last week

• Make better investment decisions with Morningstar Premium | Free 4-week trial

Emma Rapaport is a reporter for Morningstar Australia.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.