What’s the Best Superannuation Fund?

Long gone are the days when ADF recruits were automatically enrolled in the Military Superannuation and Benefits Scheme (MSBS aka MilitarySuper). With the limited exception of those who rejoin the ADF after an earlier period of service, MSBS was closed to new members from 1 July 2016.

From that date, MSBS was replaced by a new superannuation arrangement under which new ADF entrants may nominate (choose) the superannuation fund into which Defence will contribute an amount equal to 16.4%pa of their ordinary time earnings (OTE).

As a result, one of the most common questions we’re asked by new ADF entrants is “what’s the best superannuation fund?”

The answer to that question is not a simple one because it depends on a person’s attitude to risk and their definition of “best”. The reality is that  most new entrants end up in ADF Super (administered by the Commonwealth Superannuation Corporation), or ­­in the scheme in which they have been a member during their previous employment (this is called stapling). 

However, the law is that all Australians are entitled to make a choice, not only upon joining a new employer, but at any time during their employment. In theory, that sounds like a positive move, but in practice, most people don’t have the time or expertise (or even the interest) to make an informed choice about superannuation, at which point the law kicks in to make the decision for them.

In order to help Australians with the process of making a sensible choice, the Australian Taxation Office has developed the YourSuper Comparison Tool. It’s free, independent and authoritative. It provides a comparison of all the major superannuation funds in Australia, enabling you to compare how your fund is performing within the wider market.

It’s important to remember that whereas you don’t have immediate and direct control over the performance of investment markets (and therefore of your superannuation funds’ long-term performance), you do have some control over the administration and management fees that you’re paying on your account.

This is another area where the YourSuper Comparison Tool can help. Through using the personalised version of the tool, you’ll be able to see exactly the amount of fees that you’re paying on your current balance. Then you’ll be in a good position to make an informed decision about whether to move to a different fund.

Just to emphasise the point, according to the Australian Government’s Productivity Commission, a “mere” 0.5% per annum in fees over a career can leave an average person poorer by a considerable amount, sometimes in the order of $100,000. Here’s useful article from SuperGuide making this point and more about fees in superannuation.

And while you’re thinking about which fund is right for you, consider how much income/money you’ll need in retirement. Here are a few thought starters from the government’s Money Smart website. We strongly recommend using the Retirement Planner embedded in that site.

Superannuation is a Long Game

It’s vital to remember that superannuation should be understood as a long-term plan. Therefore, there’s a lot to be said for avoiding the temptation to constantly change your superannuation fund (and its underlying investments) in the hope of always achieving better investment returns.

There is a considerable amount of analysis which demonstrates that staying “in the market”, rather than trying to “time the market” (by moving in and out on a regular basis) produces better results in the long run. Here’s one of many such analyses describing market volatility events in living memory and the difficulty of successfully predicting movements in the market.

The more relevant information is how a fund performs over the long-term, say, over five to ten years. Of course, this doesn’t mean you should never change your superannuation provider or rebalance your funds’ underlying investments. Rather, it suggests that you should regularly review the evidence based on verifiable observation and experience and avoid making knee-jerk changes based on emotion and short-term volatility.

Some people prefer to undertake a review of their superannuation fund with the assistance of a licensed financial adviser. You can find out more about this process by reading Getting Financial Advice on the ADF Financial Services Consumer Centre’s website. Using a financial adviser can be money well spent, however, it is important to be aware that financial advice can be expensive (think thousands of dollars, not hundreds).

Therefore, we strongly recommend that you should get a written statement of the cost and scope of any proposed financial advice, before you proceed, thereby avoiding unpleasant misunderstandings and surprises.

Superannuation Quiz

Before leaving this topic, you might like to challenge yourself with our Superannuation Quiz. It covers many of the questions we receive online and during face-to-face seminars. The quiz isn’t designed to be easy. It’s designed to be challenging and educational, so there’s no need to be concerned if you don’t get a perfect score.

The point of the quiz is to draw attention to areas in which you could improve your knowledge of one of the most significant investments you’ll ever make. Indeed, your superannuation can sometimes be more valuable than the family home, so it’s worth taking the time to make the most of it when the opportunity arises, well before you need to use it in retirement.

Like to know more?

In addition to the links offered in this article, our website contains some ADF-specific information (including FAQs) about military superannuation arrangements, as does the Defence Pay and Conditions Manual (PACMAN).