What are the red flags your super may be underperforming?

The thing about our sensational superannuation system is that it can be set and forget.

Most of us assume that in the background of our busy lives, our super is ticking over to fund a splendid retirement for us. But it may not be. 

So here are five red flags that could leave you feeling red – if your fund is underperforming. 

Red flag 1: your fund didn’t make this year’s grade

End-of-financial year figures are in – see your inbox, mailbox or your fund’s online member portal – and the acid one-year test is a return of 8.8 per cent, says datahouse SuperRatings.

That’s for the median, what’s called a balanced fund – the type of fund you get if you don’t make an active choice, that holds about 60-76 per cent in growth assets like shares.

But as SuperRatings executive director Kirby Rappell explains: “All Balanced funds… are expected to deliver positive returns to members, while the top performing funds provided members with double-digit returns over the financial year.”  

Those top funds for the financial year 2023/2024 are in the table below.

But it’s not fair or smart to ditch and switch funds over just one year of performance …

Red flag 2: your fund didn’t make past years’ grade either

You want to judge your fund on consistency over multiple years – after all, last year could’ve been just a blip.

It could’ve been that the market conditions in 2023/2024 just didn’t suit the investment style. In other years, they might have been perfect for your fund’s manager and management approach.

“Some funds that were more defensively positioned didn’t benefit as much from this year’s share rally [but] having strong diversification supports smoother returns over the long term,” says Mr Rappell.

It could also have been that your manager just made an investment error and backed a bomb stock. Just one big, bad play could drag down the overall return.  

Here are three more performance-test measures for managing your money: 

• the 3-year median annual return for balanced funds is 4.7 per cent
• the 5-year median annual return for balanced funds is 6.1 per cent
• the 10-year median annual return for balanced funds is 7 per cent.

Has your fund matched or exceeded that? If not, it might be worth asking why – and considering whether it’s time to leave.

Here is the table of the best funds over one year, and their performance over 10 years too.

Top 10 Balanced Options over 12 months to 30 June 2024

If your fund is still looking like a winner so far, read on to make sure.

Red flag 3: your fund is on the ATO’s list of shame

For several years now, a tool called YourSuper has let you compare alternative super funds with your very own account … or it does if you log on through myGov and then the ATO, when it populates with all your personal fund information.

You can easily see the underperforming funds – it’s a search selection you can make.

APRA, the super watchdog, has put super funds through their performance paces in this pass/fail test since 2021 and the result serves as a vital warning to members.

A fund fails if it has done worse than its relevant benchmark result by 0.5 percentage points or more a year, over an eight-year period. It needs to fail twice to be designated ‘underperforming’. 

Be aware: there are now four funds that have been labelled as underperforming, so it’s worth checking first whether yours has made this list. 

Assuming it doesn’t, you could then pick and pit your super fund versus up to three of the best – you can see such funds listed on historic, nine-year performance, from highest to lowest.

Simply select three other funds, and your own, and click to see how they compare – net-of-fees figures over three, five and nine years will be revealed.

And that’s a clue to another possible red flag …

Red flag 4: fat fees on your super

Firstly, the performance figures we have been talking about are after – or net of – fees. 

But fatter fees do hold those figures back. It’s like trying to keep up with other cars on the road while driving with the handbrake on. 

Some fund managers might justify charging higher fees by saying they have a higher skill level or more actively manage your fund, but do they deliver? 

A great clue for an acceptable level of fees is the default used by the government’s super forecasting tool. 

It assumes a $74 annual administration fee and an 0.85 percentage-of-fund management cost. 

And – once you know your super fund’s average returns – it’s worth taking a few moments on that tool to project your end ‘pension’ pot. 

Hopefully, your fund is looking after you. Just make sure – in the final red flag – that there is not someone who is not …

Red flag 5: your employer is not doing the right thing

Times are tight for us all, employers included. But you are entitled to your super payments – they are a required cost to your employer. 

The mandatory amount went up to 11.5 per cent of your salary on July 1. And this must be paid at least quarterly.

With this insight and a little bit of detective work on your side, you should be able to see how your super fund is performing and whether it’s time – or when it’s time – to redirect your retirement nest egg to another fund. 

Remember, you work hard for your money, so you want your fund to work ‘hard’ for you.

Is your super fund showing any of these red flags? When was the last time you checked your fund’s performance? Let us know in the comments section below.

Also read: Super funds still not doing enough for your retirement – APRA

Financial Disclaimer: The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.