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 other funds – 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.

But there are two different ways super funds allocate investment earnings to your account, so check out SuperGuide’s simple explanation to learn more.

For information about comparing super funds, read SuperGuide articles:

• What are the different types of super funds?
• How to compare super funds in 7 easy steps
• Super fund fees and charges you need to know about

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 calculate unit prices in several ways, with some offering daily unit prices and others only calculating their unit prices once a week.

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

When you or your employer make a super contribution into your super fund account, you are allocated additional units based on the unit price applying for the day the super contribution is received by the super fund. The opposite happens, however, if you withdraw money from your super account, or a payment is made from your super account.

Doing the math: 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.

If the super fund uses weekly unit pricing, this process usually takes place from the end of the business day on Friday, with the new weekly unit price applied to members’ accounts in the middle of the following week.

What is a crediting rate?

A crediting rate – or investment return – is a percentage return your super fund decides members in each investment option have earned over a set time 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 some super funds, 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
• Super fund fees and charges you need to know about

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

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

The difference usually occurs because funds calculate their daily (or weekly) unit prices and interim crediting rates on the most recent valuation for the assets in each investment option.

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 or once every six months, so funds use previous values until updated pricing is available.

For more about listed and unlisted assets, see SuperGuide:

• Super investing: What are listed and unlisted investments?
• How investing in infrastructure boosts your super account