Choosing a super fund is a significant financial decision. It might not seem important now, but account fees and investment fees can make a significant difference in your financial wealth come retirement.
Superannuation Advice Australia can help sift through the confusion of superannuation. If the ins and outs still interest you, we’ve summarised the key types of super funds and how they differ.
To figure out which is best for you, let the SAA team create your unique financial plan so you can rest easy knowing your super is taken care of.
Accumulation versus defined benefit funds
In broad terms, funds can be divided between accumulation funds and defined benefit funds. Within accumulation funds, the balance is determined by contributions by your employer and yourself and the return on investment. Conversely, defined benefit funds use a predetermined formula to calculate the balance at retirement. Fluctuations in the market have limited effect on these funds.
Talking more specifically, superannuation funds can be broken down into six different types:
#1 – MySuper
MySuper is not a fund in itself but rather a type of account offered by superannuation funds. A government initiative, MySuper accounts are intended to replace the default accounts that superannuation funds offer. The concept aims to provide all Australians a low-fee, basic investment option for their super, no matter what fund they are with.
You can select a balanced investment plan, in which your funds will be invested into a range of diversified assets, varying in risk level. Alternatively, you can opt for an investment plan which considers where you are personally in the life-cycle between commencing work and retiring. The risk ratio switches from high risk to low risk, dependant on the member’s age.
#2 – Industry Funds
Originally established to support employees of a particular industry, most of these funds are now open to the public however they retain their non-profit, member-first ownership structure. Usually, fees are within the low to mid-range, comparative to other funds.
These funds focus on a smaller selection of investment options that will meet most of their members’ needs. Employer’s who do not have their own corporate fund (discussed below) usually offer an industry fund as their default option for employees.
#3 – Retail Funds
Whilst retail funds offer a wide range of investment options, often in the hundreds, there are mid to high fees to pay in return. These funds are usually open to the public and run by financial institutions and investment companies as a for-profit structure.
#4 – Corporate Funds
Medium to large businesses may offer their employees a corporate fund in which to make super contributions. Corporate funds are only available to employees of that company.
Superannuation owing to employees would be paid into the company’s corporate fund as the default unless another fund is nominated by the employee. Whilst it’s rare for companies to make their own fund the compulsory choice for employees, this is sometimes stipulated in the industry agreement.
Within large organisations, the company may also operate the fund, with members of the board acting as trustees. Commonly these funds will offer a wide range of investment options.
Smaller companies who operate a superannuation fund with fewer members may pass on mid to high fees, whilst larger companies operating on economies-of-scale may be able to charge minimal fees.
Attractive, high-performing corporate funds can be an effective tool in acquiring talent to the company.
#5 – Public Sector Funds
Restricted to employees of the State and Federal governments, these funds offer limited investment options to members but very low fees.
Profits remain within the fund for the benefits of members. Some employers will contribute more than the legally required 9.5% minimum as part of the employment agreement.
#6 – Self-Managed Super Funds (SMSFs)
A more complex side of superannuation, SMSFs are self-managed but closely monitored by the ATOs to ensure they are adhering to strict regulations. SMSFs can have 1-4 members, each of whom acts as a trustee.
SMSFs are particularly suited to individuals who have experience and an active interest in finance and investment.
Which one is best for you?
Your choice of super fund could mean the difference between retiring with just enough or retiring in luxury. With such an important decision, it’s best to trust the experts.
SAA can consolidate your current super accounts (including those you didn’t even know you had) into one account suitable for your individual circumstances.