Super Funds: What's the Difference?

The purpose of superannuation is to assist Australians to save for their retirement. There are various types of superannuation funds including, corporate or public sector funds, retail super funds, industry super funds, and self-managed super funds (SMSF). Each type of superannuation fund is different, and we've delved into explaining what sets each type apart. We have delved into explaining the most common super funds which are retail, industry, and self-managed super funds. 

What is a Retail Super Fund?

Retail super funds were initially developed by financial institutions and insurance companies to cater to people who were interested in investing and saving for their retirement. Retail super funds give investment expertise and advice to their clients and charge a commission for that service. The shareholders of these publicly-listed companies expect to receive a return on their investment, and a portion of the profits derived from the activities of retail super funds goes to the shareholders. Below are some examples of common retail super funds.

• BT Super For Life (Westpac)

• ING DIRECT Living Super (ING DIRECT)

• MLC Masterkey Super (NAB)

• Colonial First State (Commonwealth Bank)

• OnePath (ANZ Bank)
  

What is an Industry Super Fund?

Industry funds are not-for-profit organisations. Initially, industry super funds were predominantly developed by trade unions and industry bodies to provide for their members during retirement. Back then, the various super funds were exclusive to their industry, although industry funds are now open to the general public. Being not-for-profit funds, they generally charge lower fees, and profits are given back to members. Retail super funds are now competing with industry super funds by offering low-cost products. Below are some examples of common industry super funds.

• AustralianSuper

• REST Industry Super

• Sunsuper

• Hostplus

• Cbus Super

What is an SMSF?

A self-managed super fund (SMSF) allows members of the fund to have direct control over their savings and investments. The difference between an SMSF and other super funds is that all members of the SMSF act as trustees, meaning they have the authority to make decisions about how the fund operates and how they would like to invest that money while abiding by the strict superannuation laws. Trustees are responsible for the investment strategy and all legal and statutory requirements. Unlike retail and industry funds, SMSFs are not regulated by the Australian Prudential Regulation Authority (APRA), they are regulated by the Australian Taxation Office (ATO). Trustees must comply with both the superannuation law and the SMSF governing rules. Investments viable as part of a SMSF are stocks, property, cars, art, etc. 

The following points are potential benefits of an SMSF, outlined by Former Chair of the Super Review, Jeremy Cooper.

• Trustees of an SMSFs can choose asset allocations which would be difficult to implement in a fund regulated by APRA.

• SMSFs can have longer-term investment horizons than other funds

• SMSFs can be run in a tax-efficient manner, particularly in the transition to retirement and in managing assets supporting a pension

• Members can make well-informed decisions based on their own interests with minimal agency costs and align their decisions with their interests. 

• Members may be able to negotiate directly for reduced prices for the various services they need such as accounting, administration, and broking.

 Top Performing Super Funds

Superannuation can play a vital role in providing a financially stable future so taking an active approach to monitoring the growth of your funds is important. The performance history of super funds is one thing to consider when choosing a fund, as it illuminates what the fund could deliver in the past, although this is no measure for what may be delivered in the future.

The following table is a snapshot of superannuation funds in Canstar’s database, based on someone aged 40-49 with a balance of $100-250k. This table has been sorted by a seven-year average annual performance (highest to lowest). 

When looking at the difference between superannuation funds, it is important to consider the returns that can be made from various funds. Other factors that are important to consider when choosing a super fund are fees, whether the insurance offering is suitable for you, along with the education and advice on offer. Unfortunately, we are seeing more Australian's retiring with debt so it is important that we delve into credible research around where we are storing our money, and that we seriously consider the nest-egg we are likely to have when our final days in the workforce come to fruition. No matter what kind of super fund you have, keep an eye on your fund's performance at least once a year. If your fund consistently underperforms year after year, look into why and perhaps look at alternatives and always seek the advice of a professional.