Did you know that as of the end of the June 2021 quarter, the total balance of Australian superannuation assets totalled $3.3 trillion? We are recognised as one of the seven largest markets for pension assets alongside the US, the UK, Canada, Japan, the Netherlands, and Switzerland. With so much invested in superannuation, it’s essential that you know how your fund is performing and that you proactively manage your future wealth.
This is where your choice of super fund plays an important role. While you might not think about it today… the fees and insurance premiums you pay within your super can make a dramatic difference to your balance when you get closer to retirement.
Understanding the different types of super funds is the first step in making sure you select the most appropriate fund for your needs.
Super fund categories
To start with, let’s take a look at the different super fund categories. Almost all funds will fall into one of these five – retail, industry, corporate, public sector or self managed.
Retail super funds
A retail super fund is available for anyone to join. Banks, investment companies or other financial institutions usually run them and there are currently 93 different funds in Australia with 8.1 million accounts.* The Government’s Moneysmart website highlights their main features:
- “They often have a wide range of investment options.
- They may be recommended by financial advisers who may charge a fee for their advice.
- Most range from medium to high cost, but many offer a low-cost or MySuper alternative.
- The company that owns the fund aims to keep some profit.”
Industry super funds
Originally, industry super funds were set up to support people within a specific sector. Many were started by trade unions or large industry bodies… but today, most are open to the public. There are currently 33 different funds with 11.3 million accounts holding approximately $927 billion in assets.* Moneysmart website outlines their main features:
- “Most industry funds are accumulation funds. A few older industry funds still have defined benefit members.
- They generally range from low to medium cost, and most offer MySuper products.
- They are profit-for-member funds, which means profits are put back into the fund.”
Public sector super funds
As the name suggests, public sector funds were specifically created for government employees – both state and federal. Some are now open to the public, but they often have a limited range of investment options. They are unique in the fact that some employers contribute more than the minimum Superannuation Guarantee. Moneysmart website lists their main features:
- “They usually have a modest range of investment choices.
- Newer members are usually in an accumulation fund. Many long-term members have defined benefits.
- They generally have low fees and some offer MySuper products.
- Profits are put back into the fund.”
Corporate super funds
Major corporations, like Qantas and Telstra, offer corporate super funds to their employees. Large organisations tend to operate the fund under a board of trustees, whereas smaller corporate funds can be run by a retail or industry fund, but only available to the company’s employees. There are currently 14 corporate funds in Australia with around 300,000 accounts.* Moneysmart website says their main features are:
- “Those managed by a bigger fund may offer a wider range of investment options.
- Some older corporate funds have defined benefit members, but most others are accumulation funds.
- They are generally low to medium cost funds for large employers, but may be high cost for small employers.
- Corporate funds run by the employer or an industry fund will usually return all profits to members. Those run by retail funds will keep some profits.”
Self managed super funds
People who want to have more control over the individual investments within their superannuation can set up their own self managed super fund (SMSF). Recent legislation changes allow up to six members within an SMSF. SMSF administration is complex and these funds are closely monitored by the ATO to make sure they are following the strict regulations.
*All statistics drawn from ASFA Superannuation Statistics September 2021.
You may have heard of ‘MySuper’. This is the name of a particular type of superannuation product. Often it is the base or default product that your employer will contribute your super into if you haven’t specified an alternative. Again, Moneysmart website says:
“MySuper products typically offer:
- lower fees
- simple features — so you don’t pay for services you don’t need
- either a ‘single diversified’ or a ‘lifecycle’ investment option
Even if you’ve already chosen a super investment option within your existing fund, you can choose to move to a MySuper option.”
Accumulation or defined benefits
Finally, there are two other terms that we need to explain. These are accumulation funds and defined benefit funds. Most modern superannuation funds are classified as accumulation funds, but there are still some defined benefit funds in the market.
An accumulation fund is aptly named, as your money grows over time. Your super contributions and your investment returns help to increase the value of your retirement savings. The amount you have when you are ready to access your pension is determined by how much has gone into the super account and investment returns over the years, minus fees and any applicable tax.
With a defined benefits fund, the amount you receive when you retire is calculated by a formula rather than investment returns. It looks at the amount of money added to your super by both you and your employer, how long you have worked for your employer and your salary at retirement. These types of funds are slowly being phased out.
We can help you
Having a professional financial adviser regularly review your super can make all the difference to your long-term savings and income for retirement. Here at First Financial, our team is always happy to help!