What are unit pricing and crediting rates and why do they matter?

Understanding why your super balance goes up and down – and comparing the performance of your super fund with others – is about more than just checking fees, super contributions and insurance premiums.

It’s also knowing how – and when – your super fund calculates and applies investment earnings to the balance of your super account.

There are two ways super funds go about this, as we explain below.

How do super funds calculate investment earnings?

There is no right or wrong way to allocate investment earnings, but super funds tend to use two methods:

• Unit pricing
• Crediting rate

Traditionally, industry super funds used crediting rates to apply investment earnings to their members’ accounts, but many have now moved to unit pricing, which is the method used by most retail super funds.

What is unit pricing?

Super funds use unit pricing or ‘unitisation’ to work out the changing dollar value of your super account.

The number of units you receive depends on how much you contribute and the unit price of the investment option you have selected.

How does unit pricing work?

Super funds generally calculate unit prices each business day, using the value of the assets held at the close of market trading divided by the number of units that have been issued.

To find out how often your super fund calculates its unit prices, check out the fund’s website or the current product disclosure statement (PDS).

When you or your employer make a contribution into your account, you are allocated additional units based on the unit price applying for the day the contribution is received. The opposite happens when money is withdrawn from your account for fees, insurance premiums, or payments to you, and when you roll your balance over to another fund.

Doing the maths: Calculating unit prices

Most super funds use a multi-step process to calculate unit prices:

1. At the end of each business day, the fund receives data on the day’s transactions and the value of the investment assets from its investment managers. The fund then verifies and collates this information.
2. Costs (such as fees paid to the investment manager and any tax payable) are deducted to establish a ‘net asset value’.
3. To determine the unit price for each investment option, the ‘net asset value’ is divided by the number of units currently issued for that investment option.
4. The new unit price is multiplied by the number of units allocated to your account to give its current estimated value.

Super funds that don’t use different buy and sell prices for their units incorporate transaction costs into total investment management fees that are shared by all members.

A fund trustee might choose this option if transaction costs are minimal because the volume of contributions, withdrawals, and investment switches is sufficient to avoid trading many of the fund’s underlying assets.

For example, if members have contributed enough into an investment option that day to offset all the withdrawals and investment switches that were deducted from it, then no assets need to be sold – the units can simply be reallocated to different members. This approach minimises transaction costs and means the impact is small enough to be equitably shared among all the members of the fund.

What is a crediting rate?

A crediting rate is a percentage return your super fund decides members in each investment option have earned over a set period.

Crediting rates vary throughout the year to reflect changes in investment markets – similar to the way unit prices fluctuate – and this will increase and decrease your account balance.

Each investment option has a different crediting rate to reflect how the assets in that investment option have performed.

Your super fund calculates the annual or declared crediting rate for each investment option at the end of the financial year. It represents the annual investment return less all relevant costs (such as investment manager fees) and tax. 

Getting your money: Applying the crediting rate

While it’s easy to see the annual crediting rate on your member statement as at 30 June, things are a little more confusing at other times.

During the rest of the year, super funds calculate an interim crediting rate, and this may be daily or weekly. Interim crediting rates can also be positive or negative depending on the performance of your chosen investment option.

What happens if I switch investment options?

In most super funds that use crediting rates, if you apply to switch to another investment option your fund applies the interim or daily crediting rate to your account balance for the period you were invested in that investment option.

This interim crediting rate may be more or less than the final annual crediting rate applied to the investment option.

For more information about switching investment options, read SuperGuide articles:

• Is it time to change your super investment option?
• How to change your investment option: 6 points to check before you switch
• Risk profiling and your investment choice

Annual returns and online balances: Where’s the difference?

Many fund members are puzzled by apparent differences between the online account balance they saw on 30 June and the one on their annual statement. Although this variation is usually small, it can be confusing.

The difference usually occurs because the unit price or crediting rate available on 30 June is at least a few days old, reflecting the estimated value of assets at that time. The final crediting rate/unit price for 30 June takes some time to determine – varying from a few days for funds that use daily unit pricing to a few months for funds that use an annual crediting rate and interim daily or weekly rates.  

While the prices of listed assets (such as Australian shares) are available at the end of each business day, valuations for unlisted assets like property and infrastructure are not available daily. These assets are usually only valued quarterly, so funds use previous values until updated pricing is available.