What is superannuation? Well, it’s not the most riveting of conversation topics, unless you’re talking to an accountant or a financial planner. But it’s your retirement money and you simply can’t afford to take it lightly or, worse still, ignore it.
A good start to understanding superannuation in Australia is to cut through the clutter and know the basic types of funds available. It will help you choose the fund that’s right for you.
There are the following basic super funds:
- Retail Funds
- Industry Funds
- Public Sector Funds
- Corporate Funds
- Self-Managed Super Funds
Find out more about these super funds below.
Many super funds offer a new type of account called MySuper. MySuper will eventually replace existing default accounts offered by super funds. A default super account is one chosen by your employer if you don’t choose one yourself. MySuper accounts offer:
- Lower fees (and restrictions on the type of fees you can be charged).
- Simple features so you don’t pay for services you don’t need.
- Single or life stage investment options.
MySuper will only be offered for accumulation funds and not for defined benefit funds. Retail, industry and corporate funds can all offer MySuper accounts. You can read more about MySuper here.
Retail funds are usually run by banks or investment companies. Generally, anyone can join a retail fund and they often have a large number of investment options, sometimes in the hundreds. You can either apply to join a retail fund directly, or they may be recommended by your financial adviser who may be paid for their advice by fees and/or a commission.
Most retail funds range from mid to high cost, but some are now offering a low cost or MySuper alternative. The company that owns the fund aims to retain some profit.
The larger industry super funds are open for anyone to join. Some others are restricted to employees in a particular industry. The main features of an industry fund are:
- They usually have 5-15 investment options, which will meet most people’s needs.
- Most funds are accumulation funds. A few older funds still have defined benefit members.
- They are generally low to mid cost funds although some have high fees.
- Some offer MySuper accounts.
- They are ‘not for profit’ funds which means all profits are put back into the fund for the benefit of all members.
Public sector funds
These funds were created for employees of Federal and State government departments. Most are only open to government employees. The main features are:
- Some employers contribute more than the 9.5% minimum.
- A modest range of investment choices that will meet most people’s needs.
- Many long-term members have defined benefits, newer members are usually in an accumulation fund.
- They generally have very low fees and some offer MySuper accounts.
- Profits are put back into the fund for the benefit of all members.
A corporate fund is arranged by an employer, for its employees. Some larger corporate funds are ’employer sponsored’ funds where the employer also operates the fund under a board of trustees appointed by the employer and employees.
Other corporate funds will be operated by a large retail or industry super fund (especially for small- and medium-sized employers). Features of these funds include:
- Funds run by the employer or an industry fund will return all profits to members. Corporate funds run by retail companies will retain some profits.
- If it is managed by a retail or industry fund it may offer a wide range of investment options.
- They are generally low to mid cost funds for large employers but may be high cost for small employers.
- Some older corporate funds have defined benefit members, most others are accumulation funds.
Self-managed super funds
Do it yourself super suits some people who want the hands-on control that comes with a self-managed super fund (SMSF). Of course, with added control comes added responsibility and workload. SMSFs can be suitable for people with a lot of super and extensive skills in financial and legal matters. You must be prepared to research and track your super investments regularly if you want to manage them yourself. You can set up your own private super fund and manage it yourself, but only under strict rules regulated by the Australian Taxation Office (ATO). An SMSF can have between one to four members. Each member is a trustee (or director if there is a corporate trustee). Running your own fund is complex. You must:
- Carry out the role of trustee or director, which imposes important legal duties on you
- Use the money only to provide retirement benefits
- Set and follow an investment strategy that ensures the fund is likely to meet your retirement needs
- Keep comprehensive records and arrange an annual audit by an approved SMSF auditor
You can find out more about self-managed super funds here.
Before making a decision it is worth speaking to an Independent Financial Planner, as some professional guidance now can make a significant difference in retirement.
If you are looking to compare superannuation funds, check out the following table which contains details of the funds rated by Canstar. This table has been sorted by three-year performance (highest to lowest), and is for someone aged 30-39 with a balance of between $55-100k. Please note that the performance information shown in the table is for the investment option used by Canstar in rating of the superannuation product.