How does your fund stack up?

Super-fund members could be forgiven for thinking that all superannuation funds are the same. That's because super is talked about as if it is an investment in its own right, like shares or fixed interest, rather than just a tax structure. It is this thinking that masks big differences in the returns of funds.

Super-fund members could be forgiven for thinking that all superannuation funds are the same. That's because super is talked about as if it is an investment in its own right, like shares or fixed interest, rather than just a tax structure. It is this thinking that masks big differences in the returns of funds.

When talking about performance, it's the return of the typical, or median-performing "balanced" investment option that gets quoted in the media. But super funds have at least a dozen investment options. Some invest in only one asset class, such as Australian shares. Others spread the money among various asset classes.

Most people are in their fund's "balanced" option, which is designed to have an asset allocation that suits the majority of the fund's members. This type of investment option is usually the one an employer will have for its new employees who don't choose who manages their super.

But data from SuperRatings shows a 4 percentage point returns gap between the best- and worst-performing balanced investment options over the past 10 years. Because of compounding, over the 10 years, the best-performing balanced option would have an account balance almost 50 per cent higher than the worst performer.

This underlines the importance of taking an interest in your super and checking on how your investment option compares with the balanced options of other funds.

The two biggest reasons for differences in performance are asset allocation (how much is invested in shares, property and so on) and fees - the lower the fees the better.

"While we do not subscribe to the view that members should be aiming to pick 'winners', we do believe that members should have regard for the longer-term performance of their option against the index [median return]," says Kirby Rappell, the research manager at SuperRatings.

The good news is, fees are coming down. And that means the spread between the returns is becoming smaller. Although, some funds still have fees as high as 2.5 per cent when the average is 1.4 per cent.

The performance of an investment option cannot be judged on the basis of one-year returns. Investment markets go through cycles and because options have differing exposures to investment markets, they perform differently at different times in the cycle. However, alarm bells should ring if your investment option underperforms compared with similar investment options over periods of at least five or seven years. Comparison is easy. Your fund will provide long-term returns on its website.

Returns can also be compared over the same time frame with the median given by SuperRatings at superratings.com.au.

While performance is important when choosing a fund, it's not the only consideration. Be aware that most superannuation funds have automatic acceptance for life insurance up to certain amounts of cover. But some funds require a medical examination, or that a questionnaire be filled out, before accepting the member for total and permanent disability insurance. Some funds may have automatic acceptance but a lower level of cover than your existing fund.