You may be wondering what superannuation fund is the best choice for you and whether your super is really invested in the most suitable fund. The following article will highlight the advantages and disadvantages of both industry and retail super funds so that you can compare the products available to you.
What is superannuation?
Superannuation or more commonly super is money that is set aside or put away while you are working to be used to maintain or fund your lifestyle in retirement. The main way this occurs is through the Super Guarantee (SG), whereby your employer is legally required to contribute 10% of your ordinary time earnings into your superannuation. To read more about the different types of super contributions, click here.
What is an industry super fund?
An industry super fund is a form of superannuation fund that was initially established by trade unions and industry bodies to provide for their members in retirement. A distinctive feature of some of these funds is that they are only available to members or employees of the relevant body such as education or health. However, many of the larger industry funds are now open for the public to become a part of. These super funds include:
- Australian Super
- Aware Super
- Host plus
- Rest Super
- Sun Super
- Uni Super
The main characteristics of an industry super fund include that they are low to medium cost funds and are non-for-profit which means that profits are reinvested back into the fund. One of the advantages of industry super funds is that they charge lower fees in comparison to other funds, however, the trade-off as a result of this is that the investments available to individuals are more limited. Therefore, members with their super invested with industry funds have reduced freedoms concerning the investment classes and options they have access to.
What is a retail super fund?
Retail super funds are another form of superannuation fund which are typically run by banks, investment or wealth management companies and are open to anyone in the public. The main advantage of retail funds is that they have a wider range of investment options available to their members. However, as a result of this, these funds charge higher costs in comparison to industry funds.
Whilst the fund is a trust structure and therefore prohibited from receiving the profits it generates, the company that owns the fund will retain some of the profit generated or may distribute it to its shareholders.
Australian retail super funds include:
- AMP superannuation
- BT Superannuation
- Colonial First State Superannuation (Commonwealth Bank)
- MLC superannuation (IOOF Holding)
- OnePath superannuation (IOOF Holding)
According to the Australian Prudential Regulation Authority, industry funds hold more total superannuation assets than retail funds. Industry funds accounted for 27.4% of Australia’s $3.1 trillion total super assets as of March 31, 2021. Retail super funds held 20.8% of total assets, with the remaining assets being held by small funds such as self-managed super funds (SMSFs)(25.2%), public sector funds (18%) and corporate funds (1.9%).
A research report conducted by the Productivity Commission found that not-for-profit industry funds have ‘systematically outperformed’ retail funds. However, the report also found that industry funds made up 10 of the 26 underperforming funds.
Studies conducted by APRA have suggested that the average annual rate of return for all APRA-regulated funds to December 2020 was 3.1%. Public sector funds (up 3.6%) and industry funds (up 3.4%) outperformed, while corporate funds returned 2.7% and retail funds with an annual return of 2.3%.
Which is the best superannuation fund for you?
Choosing where to invest your super should be a calculated and informed decision that considers the benefits, risks and costs of each option. When making this choice it is important to consider the following criteria:
- Investment performance
It is important investors investigate the long-term performance of a superannuation fund prior to electing a fund to invest their super with. However, when looking at the numbers it is important to remember that past performance is not indicative of future performance and therefore it is crucial that investors keep this in mind.
The amount you earn and have invested in super is a key factor when choosing a superannuation fund. If you are a lower-income earner you may want to consider choosing a superfund that charges fees that will be in proportion to your super balance. Although choosing a super fund with a wide range of investment options may appear to be an attractive option, this is likely to be accompanied by higher fees which may swallow up your overall returns. Therefore, it is a good idea to conduct a comparison of the fees charged by the superfunds you are interested in using.
- Investment options
Another factor that investors should consider is the range or type of investments offered by the superfund in question. These should align with your circumstances as well as the level of risk you are willing to bear. Choosing a high growth but high-risk investment option may seem to be a profitable way to invest your super but it must be congruent with your risk appetite and investment time horizon.
Before making any decisions, it is important to consider all the benefits, risks and costs associated with any superannuation fund. If you are seeking guidance and wish to discuss the best options available to you, click here to organise a complimentary 20-minute phone call with an EPG Wealth adviser.