What are the different types of super funds?
What are the different types of super funds?
You’ve probably noticed that there are A LOT of super funds out there – and the range of options can be pretty confusing. To understand the differences between all of those funds, it helps to know what the different types of super funds are.
Basically, there are five main types of funds: retail funds, public sector funds, corporate funds, self-managed funds and, our favourite, industry super funds.
Retail funds are usually run by big banks or investment companies and are run for-profit, which means they may generate corporate profits which are returned as dividends to shareholders – not their members. Their fees are mid to high cost.
Public sector funds are run specifically for government workers - who often receive higher super contributions than the legislated minimum. Must be nice!
Corporate funds are set up by some of the bigger companies in Australia – for example, Telstra has its own super fund for its employees. These types of funds appoint a board of trustees to oversee the investment of their workforce’s super.
A self-managed-super-fund is – and the name kind of gives this one away – an investment fund you manage yourself. Managing your own super takes a lot of time and commitment and should only be considered if you already have a heap of money in your super. Basically, it’s expert mode super.
Then there are industry super funds and, yes that’s us, but we think these are a great option. Industry funds are run only to profit their members and have a history of above average investment returns. Industry funds’ fees are also usually on the lower side compared with retail funds, and this is important as high fees can eat away at your balance pretty quickly, especially if you work casual or part-time.
Tell me more about for-profit funds vs profit-to-member funds
For-profit funds aim to keep a chunk of the of the money made from investing YOUR money to pass it on as profit to their shareholders. Fees are generally on the higher end and are also used to profit the fund itself – not you! The banks, insurance companies and shareholders behind these for-profit (retail) superannuation funds have regularly made enormous profits for themselves and their shareholders over the last 20 years, whilst the average retail fund has delivered around $95,000 less to their members than the average Industry SuperFund.* See what this looked like over the last five and ten years.
With profit-to-member funds (industry super funds), all money made from investments is paid back into the fund. On top of that, fees are only used to run the fund, covering the costs of its management and investment activities.
So when it comes to deciding whether you want a slice of your hard earned going to the big banks, or all of it being invested for YOU – well, we think the decision is pretty easy.
So what do I need to think about when choosing a fund?
If you don’t work for the government and you don’t work for a big company that has their own super fund, you’ll most likely need to choose between a retail and an industry fund. So, between a for-profit or profit-to-member fund (like we said above, we reckon this is a no-brainer). Once you make that choice, there are a few other things to think about.
Look at the performance of a fund or, in other words, how much money it’s made for its members. Remember, super is a long-term investment, so you should look at returns at least over the last 10 years (or more) to get an idea of how the fund has performed over time.
It’s also important to consider what services and insurance a fund offers. Some funds offer financial advice/planning services, which can be a big help. Most funds include insurance, sometimes insurance cover is tailored to the industry/s that a fund serves.
What about fees and costs?
Fees and costs are definitely something you should think about, as the more fees come out of your super, the less you will be left with when you retire. You should try to find a good balance of low fees and high investment performance.
One thing you should really, REALLY avoid, is having more than one super account.
If you have multiple accounts, this means you are paying multiple sets of fees which could be taking a huge chunk out of your total balance.