If you have ever worked in Australia, chances are you have a superannuation account — but how much do you actually know about it?
Superannuation is designed to support you in retirement, and your super fund manages your money until then. To maximise the amount you'll eventually cash out, funds aim to achieve strong financial returns.
It's not all about profit, though. Many Australians are now shunning what they consider harmful investments for more ethical options, according to the 2023 ASX Australian Investor Report.
The report also found an estimated $1.54 trillion in assets under management in Australia – about 43 per cent of all professionally managed funds – was invested responsibly in 2021.
So what does that actually mean? What are super funds investing in, and how does superannuation actually work?
What is superannuation and how does it work?
Superannuation is money your employer pays into a designated fund for you to access in your retirement.
Your employer is legally required to pay these contributions on top of your salary or wages, and you can only withdraw the money in limited circumstances.
You can also make additional voluntary contributions, which will compound over time.
Superannuation funds aren't savings accounts; they're designed to be long-term investments that generate returns. Your chosen fund manages and invests your money to achieve that goal.
Funds generally have a range of investment options and account types depending on your stage of life and personal preferences.
You can select your fund or type of account based on their past performance, investment choices and level of risk.
When you retire, you can access your superannuation as a lump sum, income stream, or combination of both.
Ian Fryer, general manager at fund information company Chant West, said it's important for all Australians to understand their super fund's performance and options.
"Look at the performance of your fund and don't just do it over one month or one year — do it over a longer period of time ... and if it's below the others, you should maybe think about looking at other options," he said
"The performance you get from your super fund is going to have the biggest impact on your retirement."
Fryer also recommends finding out how your fund invests, whether it provides insurance, and if you can make additional contributions,
What are ethical superannuation funds?
While some consumers prioritise getting the highest returns, others seek a super fund that aligns with their personal values.
This often comes in the form of environmental, social and governance funds, which market themselves as being more ethically responsible.
Gerard Brody, acting director at advocacy group Super Consumers Australia, said ethical or ESG investing is based on the notion of making investments based on ethical principles.
"For example, with climate-related issues, it might be investing in green energy, and they might also be excluding some sorts of investments from their portfolio that they deem not to be ethical," he said.
"That might be gambling companies or companies involved in producing arms or weapons."
Fryer said some funds will opt for socially responsible investments in order to achieve long-term returns.
"The main reason why they're doing that is not because they want to impose particular values on their portfolio, but there's a recognition that for companies that aren't behaving in a responsible way, that's actually going to have an impact on their future performance," he said.
For example, companies responsible for significant greenhouse gas emissions might not be considered a strong investment as Australia moves towards meeting its climate change reduction targets, he said.
"If a company's doing some things which is harmful to society or to the planet, then that's not going to work for the long term," Fryer said.
Can you check what your super fund invests in?
Super funds don't generally advertise the entirety of what they invest in but, with some research, you can find out some details about where your money is going.
As a starting point, you can examine your fund's website and product disclosure statement.
The product disclosure statement provides general information about how the fund splits investments between safe and risky assets, and whether it opts for national or international shares, but not a detailed breakdown.
Brody said that, while the information is limited, transparency is increasing.
"Super funds are now obliged to issue a product portfolio holding disclosure statements," he said.
These statements contain "information about the companies, the super fund's complete holdings, including the percentage and value of every single company stock held," he said.
Portfolio-holding disclosure statements can be accessed via an online search, but comparing different funds' disclosure statements is not always straightforward.
"Some of them are really detailed line-by-line information that might overwhelm you, (while) others are more simple to navigate and might enable you to search as well," Brody said.
"There can also be issues where many super funds appoint an investment management firm to invest on its behalf, and that might be a way in which we have less disclosure about what actual investments are being made by super funds."
What do Australia's major super funds invest in?
Australian super funds invest members' money in both Australian and international markets.
Their investments can include holdings in infrastructure, equities, property, retail companies, banks and mining companies.
Super funds also keep a portion of their members' money in cash holdings.
According to data analysis conducted by NAB in June 2022, the majority of assets held by Australia's 14 largest super funds are domestic.
On average, funds included in the analysis had 46 per cent of listed assets invested domestically and 54 per cent offshore.
The analysis also examined the top individual shareholdings of the funds examined and found mining and metals company BHP was the largest holding, followed by technology company CSL.
Commonwealth Bank, NAB, and Microsoft rounded out the top five.
