Every working Australian has it, we all need it, but not all of us take the time to think about exactly what is happening with our money.
In fact, statistics show that over 75% of employees stick with the default fund their employer chooses.
So whether you’re just entering the workforce, currently changing jobs or consolidating your super accounts, how you choose your fund can have a huge impact on how much money you’ll have at retirement age; or how much is passed on to your loved ones. That’s why finding the right combination of low fees and high performance today can mean a difference of tens of thousands of dollars in future.
According to fellow financial experts at Max Funding, “there are rules in place to allow individuals to apply to have part of their super fund released to assist with managing debts prior to the retirement age.”
However it is this type of financial management challenges that should be avoided. Still, with more than 180 super funds regulated by the Australian Prudential Regulation Authority (APRA) as of June 2018, navigating your options available may seem overwhelming.
However, super funds generally fall into five categories, each of which has its own pros and cons on your journey towards wealth management. So if you’re looking to understand the options available to you, here’s what you need to know.
1. Industry Super Funds
As the name suggests, these funds are associated with a particular industry, such as education, hospitality or law, and many of these funds were initially trade union based. Industry super funds often restrict membership to employees within the industry they represent, though some of the larger funds are open for anyone to join.
Industry super funds are also one of the two most common options for Australians, totalling 41% of all super accounts. These super funds tend to have fewer investment options than retail super funds, though they are sufficient for most people.
With their team made up on Industry Super Fund members, Smart and Fast Electrical explain one of the key benefits of industry super funds, saying “they are set up as not-for-profit organisations. All profits are directed back to members and no commissions or fees are paid to financial advisors.”
This generally results in lower fees to members – though fees do vary from fund to fund.
2. Retail Super Funds
Alongside Industry super funds, retail super funds are the other major type of fund used by Australian workers, making up 40% of accounts. These are run by financial institutions or investment companies and make use of financial advisors who may receive fees or commissions.
Unlike industry super funds, retail super funds are for-profit organisations, which means the institution or company aims to keep some of the profit.
Retail super funds are open to anyone, meaning you are not restricted by the industry you work in. Another major benefit is that these large funds have access to a greater number of investment options, making them attractive for people who want more control over how their super is managed.
According to the financial experts at Fortuna Smart Finance, “the insurance offered can go beyond the one-size-fits-all solution offered by other funds, allowing it to be more tailored to your specific needs. The use of financial advisors by the fund can also be a benefit to members seeking advice, particularly as they approach retirement age.”
3. Corporate Super Funds
Once a popular option, this type of super fund has declined somewhat in recent years, with now just 300,000 accounts Australia-wide. These funds are set up by a particular company and are operated specifically for its own employees.
The fund is either managed by a board of trustees, in which case it is not-for-profit or be part of the larger retail fund, in which case it will be for-profit.
Corporate super funds run by larger organisations may be able to negotiate lower fees for their members, and access a wider range of insurance options. There is also the benefit of an ease of communication between the fund and the member.
4. Public Sector Funds
Even more specialised than industry super funds are public sector funds, which were set up to cater for government employees. This form of super may include workers in the public service, statutory authorities, local government and military services.
The structure and management are similar to that of industry super funds, though they may have fewer investment options. Despite this they typically have enough to meet the needs of most members.
Public sector funds are not-for-profit, meaning that all profits are directed back into the fund to benefit members. Fees for public sector funds are also generally very low.
In addition, some employers connected to these funds may contribute more than the minimum amount, which is 9.5% of an employee’s salary.
5. Self-Managed Super Funds
Self-managed super funds (SMSF) are private funds set up by an individual or family to manage their own investments. Also known as DIY funds, they are regulated by the Australian Tax Office (ATO) and must comply with the same rules and regulations as other super funds.
Self-managed super funds allow individuals complete control over how and where their money is invested with all members acting as trustees or directors for the fund. By setting up a SMSF you are taking responsibility for all financial decisions regarding your superannuation. As a result they are only recommended for those with significant experience.
You may enlist the help of financial advisors to set up or maintain your fund, but you are still liable for the outcome.
According to Empowered Finance, "People turn to SMSFs because they have access to a greater range of investment options, in particular, allowing them to invest in real estate that can generate further income."
Another reason people choose to have SMSFs is the fact that these funds can have up to four members, meaning that resources can be pooled for greater purchasing power.
6. MySuper Accounts
Introduced in 2013, MySuper is a government initiative to provide employees with a no-frills, low-cost option for their superannuation. The idea is to offer a default superannuation account for workers whose employers do not allow them to choose their own fund, or who do not wish to choose a particular fund.
MySuper is not, in fact, a separate fund, but an account type within another fund; MySuper accounts may be offered by retail, industry or corporate super funds.
These accounts can be an attractive choice for those who do not have experience or interest in superannuation.
Simple to understand, use and manage, these accounts also have lower fees than other options. While MySuper accounts may offer default insurance products, they can be easily opted out of.
Contributor: Julian Parsons