There is no doubt that superannuation is a complex topic – and yet something every working Australian needs to understand, in order to have the most comfortable retirement possible.
Choosing where to invest your hard-earned nest-egg, and then choosing how you’ll access those funds in retirement will be amongst the most important financial decisions you’ll ever make.
What are retail superannuation funds?
Retail super funds are mainly owned by banks and insurers and are run to generate a profit to their shareholders. They use the funds they manage to make corporate profits that they return to shareholders as dividends, as well as to their super customers as returns.
These funds typically pay financial advisers (either their own staff or other qualified professionals) commissions or incentives to sell their products.
What are industry super funds?
Industry super funds were established in the 1980s as an alternative to retail super funds, and now include 16 funds across a wide range of industries.
Unlike retail super funds, industry super funds don’t pay commissions to their staff or other financial advisers and don’t pay dividends to shareholders, therefore allowing profits to be returned to their members.
This focus on returning value to members would seem to be paying off for the industry funds, making them an attractive option for investors.
Industry super funds outperform retail funds
According to independent research firm SuperRatings, industry funds outperformed retail funds with the median gap between industry and bank-owned funds being well above two per cent per year over past seven years.
Over the long term, these differences in performance can have substantial implications for how long you stay at work and your lifestyle in retirement.
Industry SuperFunds estimates that over the last 10 years, the average retail fund has delivered around $15,000 less to each member than the average industry super fund*.
Matt Linden, a spokesperson for Industry Super Australia, said the solid performance could be attributed to the unique characteristics of industry funds.
“Industry super funds have long-term, nation-building investment strategies, deliver all profits back to their members and are governed equally by employer and worker representatives,” Linden said.
“It’s important that all Australians watch how their super funds are performing, as persistent shortfalls could result in having to work longer or retire with less,” he said.
“These new figures show that at least the retirement savings of industry super fund members are in good hands.”
*Past performance is not a reliable indicator of future performance. Assumes starting balance of $50,000 and initial salary of $50,000. Comparisons modelled by SuperRatings, commissioned by ISA. Modelled outcome shows 10 year average difference in net benefit of the main balanced options of 16 Industry SuperFunds and the 77 retail funds tracked by SuperRatings, with a 10 year performance history, taking into account historical earnings and fees – excluding contribution, entry, exit and additional advisor fees. Outcomes vary between individual funds. Modelling as at 30 June 2017. See www.industrysuper.com/assumptions for more details about modelling calculations and assumptions. Consider a fund’s Product Disclosure Statement (PDS) and your personal financial situation, needs or objectives, which are not accounted for in this information, before making an investment decision. ISA Pty Ltd ABN 72 158 563 270 Corporate Authorised Representative No. 426006 of Industry Fund Services Ltd ABN 54 007 016 195 AFSL 232514.
This article was first published on Starts at 60 in February 2018. The information referred to may change from the date of publication and care should be taken when relying on such information.