A friend recently asked me – How would I know which Super fund to pick and which one is better? This is a question many people ask about Super and sometimes the endless choices can become confusing. You’ve probably seen the ads on TV saying industry fund charges are less than retail funds and will provide worker A with more money at retirement than worker B. In this article I’ll try to explain the various types of funds available and the differences between them. Please note though, that Super is a very complex system so I’ll only be going through the basics. For you to gain more knowledge you’ll need to do additional research (which I also hope to include in later articles) or seek professional help.
3 stages of the Superannuation Cycle
Before talking about Super fund choices I thought I would include the three stages of the Super cycle throughout a persons life. Stage 1. Contributions
- These come from Employer Super Guarantee payments from an employer (presently 9%) paid through a workers salary.
- Personal deductible contributions (Salary sacrifice)
- Spouse contributions
Stage 2. Accumulation
- Investment strategy of fund
- Asset returns (shares,bonds,fixed inters cash etc)
- Insurance via Super – Term Life TPD and Income Protection
Stage 3. Benefit Payments
- Release of Super funds depending on age.
- Income Streams – account based pension or annuity
- Death Benefits – Lump sums, Child pensions, Dependants
- Social security implications.
Superannuation Fund choices are as below –
My Super – was an initiative started by the government because they realised people were being confused by the vast array of default Super funds offered by employers. My Super accounts are designed to be simple and will eventually replace default Super funds accounts that employers choose if an employee does not make a choice. My Super accounts will offer –
- Lower fees (and mandated restrictions of fee’s charged)
- Simplified features
- A single investment option, or options related to the position in your life cycle.
Retail Funds –
- Usually run by banks or their investment company arms.
- Anyone can join
- They usually have a large number of options available from cash, Aussie shares, Overseas shares, Property funds etc.
Industry and Public sector funds –
- Usually up to 15 investment options that will meet most people’s needs.
- They are usually accumulation funds, although some of the older funds are defined benefit funds which pay out on a percentage of your final average salary, until you die.
- Generally they are low to middle cost funds
- Some offer My Super accounts
- Usually “not for profit” funds which means all profits are reinvested in the fund to the benefit of all members.
Self managed Super Fund – This is now a massive industry in Australia and many wealthy people choose to go down this path as it allows a lot of flexibility to invest and make best use of your Superannuation savings. It is not to be taken on in a light hearted manner though as Super laws are very strict and any transgressions are dealt with by the Tax Dept. with large fines. Also, anyone contemplating a SMSF, should not even contemplate it without at least $200,000 starting balance. The charges and administration fees are large and below this figure they would become a burden. I hope this has helped your understanding of the different choices of Superannuation Funds. Although it can sound daunting most people will only ever be involved in the Industry or Public sector fund that their employer chose for them. Most of these as I’ve already mentioned have investment choices and reasonably low fees that will fulfil peoples wishes. However, that doesn’t mean you can’t shop around and change funds if you feel you can find a better deal on fees or a more suitable fund manager. Changing funds is not a complex matter, it usually involves filling out a small amount of forms to move funds from one account to another. Don’t forget if you want to use the free Super calculators, they are in the menu on the top of the Home page or you can access them here.
Cheers for now and remember it’s Your Savings!!