Take a long, close look

PERFORMANCE and fees are key for those people who care how their retirement savings are progressing.

A monthly or quarterly statement from a superannuation fund will show both of these and they are important. But anyone trying to work out whether they are in the right fund really needs to look beyond those two figures.

There is a favourite saying in financial circles: past performance is a poor indicator of future performance.

That adage fits well with superannuation because it is an investment structure that offers substantial tax advantages. It is not an investment in its own right.

The underlying assets in which the superannuation fund invests your money will ultimately determine the balance of your account. Most asset classes perform differently depending on what is happening in the broader economy, hence the great divergence in superannuation fund returns.

Growth assets such as shares and property will perform differently at different times than, say, conservative or defensive assets such as cash.

Most super fund members have their money in a balanced fund, which is about 60 per cent in growth assets and 40 per cent in defensive assets to help smooth out some of the volatility that occurs.

The most accurate assessment of a fund's performance track record is over a seven- or five-year period rather than the past three months or a year.

Comparisons should be made between your own fund and similarly invested funds over the longer term.

Competition among the superannuation funds for business means fees have become more competitive, with the average management fee for a retail superannuation fund about 2 per cent.

Industry superannuation funds are generally much cheaper.

Depending on the type of fund you are in, you may also pay an administration fee of about 1 per cent. If you use an adviser, there will also be a fee but then the management fee may be more like the average 1.25 per cent charged to wholesale fund investors.

High fees paid over many years - which is part of what superannuation is all about - can have a considerable impact on the final balance, which is why they are important.

What investors have to ask themselves is what they are getting for the fees.

Is it advice and a relationship with an adviser with which they are happy? Is it good, consistent performance that fits with their overall objectives? Is it access to assets they may not be able to invest in as an individual? Is it good customer service and easy access to account information?

Obviously, anyone paying higher than average fees for consistently poor performance needs to review their situation.

If returns have been tracking along as expected or communicated to you by the company and the fees are acceptable, then the other important features of superannuation funds that may need to be reviewed are insurance and estate planning.

"It is important not to get too hooked up on the past," says Nick Loxton, a financial advisor with national stockbroking and financial advisory firm Prescott Securities.

"Superannuation, by its nature, is a forward-looking investment tool, yet investors often focus solely on the historical performance. Past returns are, of course, a key measure of a super fund's track record but they're not the only comparative data investors should be looking at.

"In the post GFC-world of more realistic super returns, the underlying benefits of individual funds are becoming even more critical when comparing performance.

"One key question you need to ask yourself is: how is my super going to facilitate my future lifestyle?

"This is where insights into characteristics such as investment flexibility within the

fund and the forecasts for the underlying assets are important."

Loxton says the volatility in global markets at present makes it prudent for investors to have a clear understanding of exactly where their funds have been invested.

Transparency is high on the list. The more detail of where your super money is invested, the better.

Then ask yourself: are you able to influence the asset mix in your super? Not every fund offers investment choice beyond the basic growth, balanced and conservative options.

Another key comparison is how the super funds treat estate-planning issues.

"I find that not enough attention is given to how superannuation will be distributed on the death of the superannuant," Loxton says.

If you have a set idea of who you want your death benefits to go to, then you should be in a fund that allows a binding nomination or the equivalent - otherwise it will be left up to the trustees of the fund to decide.

With insurance, most super funds offer a basic level of life insurance. It is important to check the insurance amount and whether it is possible to increase it to a more suitable level as well as add different types of insurance.

Buying insurance through a super fund can be cheaper and is tax-effective because it is being paid for out of pre-tax dollars.

Tips for judging performance Look for reasonable performance It's a waste of time trying to pick next year's top performer.

Judge performance over at least five yearsSuper is a long-term investment. Short-term figures, such as the past 12 months or less, are all but useless.

Compare like with likeLook at what the fund is investing in. A label such as "growth" for one fund might not mean the same thing in another fund.

Try to use the same start and finish dates for each fund Five-year performance from June to June will differ from January to January.

Source: ASIC

Case study

LIKE many Australians, Mark Sareff, 50, had more than one superannuation account for years. Earlier this year the founding director of creative advertising firm Happy Soldiers finally did something about it and rolled most of his nest egg into a single account with Virgin Super.

His move was driven by Virgin being a client of the firm, as well as an annoyance towards the "fee-gouging" that went on during the global financial crisis.

"I was irritated after the GFC and finally got motivated to do something about it and look for a fund with a fairer way of charging," Mark says. The more money an investor has in a Virgin Super account, the lower the management fee percentage rate becomes.

"The managers will get paid based on the way they perform," he says. "I feel the company will do well but they will also do the right thing by me." Six months prior to moving his own superannuation, Mark was part of the team that chose Virgin Super as the employees' default fund.

"We naturally had a bias towards Virgin but out of duty to our employees we could not just go with them because they were a client," he says. "If you are an entrepreneurial type of company with a spirit of free enterprise, then Virgin is a great fit.

"We can do everything electronically. It sends us prompts when we need to make payments. It offers insurance.

"It has low fees and is simple because of its index-tracking approach. Any company that has women on its payroll [has] to be impressed with the baby break feature. When an employee is on maternity or paternity leave they stop taking fees out of your account."