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Choosing a super fund is one of the most important financial decisions you will make during your working life. With the difference between a top fund and a poorly performing one potentially adding tens of thousands of dollars to your retirement nest egg, choice of fund deserves careful consideration.
Whether you are self-employed or an employee receiving compulsory Superannuation Guarantee (SG) payments from your employer, you can generally choose your fund.
There are some exceptions though. Some people covered by industrial agreements or members of certain defined benefit funds may not have a choice.
These days most super funds are open to all comers, or what is called public offer, but not all. For example, some companies offer low-cost funds that are restricted to their employees.
Other types of funds may attract certain types of members for historic reasons, such as public servants or members of a trade union, but now be public offer.
Wealthy individuals and people who want to hold business or investment property inside their super fund often prefer to run their own self-managed fund.
Whatever your circumstances, it’s important to canvass all your options before you make your final selection. It’s also worth remembering that your choice of fund is not a life sentence. If you are unhappy with your fund for whatever reason, you are free to switch funds provided you have choice.
Types of super funds
Here is a rundown of the five types of funds:
- Corporate funds. These funds are offered by companies such as Telstra and Qantas for their employees. Some large corporates operate the fund under a board of trustees representing the employer and employees. Smaller corporate funds may operate under the umbrella of a large retail or industry super fund. Funds run by the employer or an industry fund are generally not-for-profit, while those run by retail funds retain some profits. They are generally low to medium cost, especially for large corporates. Most are accumulation funds, but some older funds may be defined benefit (see ‘Accumulation vs defined benefit funds’ below).
- Industry funds. These once catered to workers in single industries across multiple work sites, but most are now open for anyone to join. They generally have a limited menu of pre-mixed investment options designed to meet most people’s needs, including MySuper accounts (see below). However, larger funds these days often allow members to select their own shares, ETFs and term deposits. They are generally low-cost not-for-profit, meaning profits are put back into the fund for the benefit of members. Most are accumulation funds.
- Public sector funds. Originally created for federal and state government employees, some of these not-for-profit funds are now open to anyone. They generally have a limited menu of investment options, including a MySuper option, low fees and good member services. Some employers contribute more than the minimum 9.5% Superannuation Guarantee. Older members are often in defined benefit products while newer members are in accumulation funds.
- Retail funds. These funds are run by banks and other financial institutions and are open to all investors. People who consult a financial adviser/planner are generally offered a retail fund via an administrative platform with access to a wide range of investments, often running into the hundreds. Most retail funds are medium to high cost, with advice fees and platform fees, although many now offer a low cost MySuper alternative. They are usually accumulation funds, and the company running the fund retains some profit.
- Self-managed superannuation funds (SMSFs). DIY investors who want more control or flexibility can run their own super fund or make it a family affair and involve their partner, adult children or other members up to a maximum of four members. (The government had introduced a Bill into parliament to increase this number to six from 1 July 2019 but this legislation has not yet passed.) All members must be trustees (or directors if there is a corporate trustee) and are responsible for all decisions made about investments and compliance with relevant laws. There is no minimum investment but set up costs and annual running expenses can be high, especially if you use administration and other services. For this reason, it is widely accepted that SMSFs are more cost effective once you have a balance of at least $500,000. To learn more about self-managed super funds see our SMSFs section.
While SMSFs are regulated by the Australian Taxation Office (ATO), all other types of funds are regulated by the Australian Prudential Regulation Authority (APRA).
The table below gives an overview of super fund accounts and asset by fund type.
|Type of fund||Total assets ($ billion)||Growth in assets in last 12 months||Number of funds||Number of member accounts (June 2019)|
Source: APRA statistics – December quarter 2019 and APRA annual statistics for number of accounts.
MySuper funds are not a type of super fund but one of the options they offer, mostly as a default account for people who don’t choose their own super fund when they start a new job.
They are designed to be simple, low cost and easy to compare, to protect the retirement savings of members from being eaten away by fees for services or advice they don’t want or need.
As at December 2019, there were 97 MySuper accounts with total assets of $802 billion.
MySuper accounts can be offered by retail, industry and corporate funds to members in accumulation phase (pre-retirement), but not as defined benefit funds or super pension accounts for retirees. Almost half (47%) of super providers offer MySuper products.
Accumulation vs defined benefit funds
Most funds these days are accumulation funds, so-called because your savings accumulate and grow during your working years. Accumulation funds are also referred to as defined contribution funds. What comes out when you retire is determined by what goes in (employer contributions and your personal contributions) plus investment earnings and how that money is managed, less tax and fees.
Defined benefit funds are gradually being phased out, but that doesn’t mean they are no good. In fact, some defined benefit funds are very generous. Most are corporate or public sector funds and often closed to new members. Their appeal lies in the fact that you are guaranteed to receive a ‘defined’ benefit on retirement irrespective of how well markets and the fund perform.
With a defined benefit fund, your retirement benefit depends on how much you and your employer contribute, how long you have worked for your employer and your salary when you retire. This probably explains why fund managers were keen to shift to an accumulation fund model, where the risk lies with members, not the fund manager.
If you are lucky enough to be a member of a good defined benefit fund, then do some research before you are persuaded by a financial adviser or anyone else to switch to an accumulation fund. It could be in your best interests to stay put.
Eligible rollover funds
An eligible rollover fund (ERF) is a holding account for lost or inactive members with low account balances. All super funds are required by law to nominate an ERF to hold onto the balances of their lost or ineligible members.
ERFs must be registered with APRA and are only intended to be a short-term holding place.
Some ERF providers will try to find your active super fund so you can be reunited with your lost savings. By consolidating the money you have sitting in an ERF into your active account will save money on fees and benefit from having a larger amount compounding and accumulating for your retirement.
Like all super funds, the money in eligible rollover funds is invested and fees are charged; some do a better job and charge lower fees than others. Unlike other super funds, they can’t receive ongoing contributions from your employer.
Single member Approved Deposit Funds
Approved Deposit Funds (ADFs) are a special type of ERF designed to accept redundancy payouts and other types of eligible termination payments. You don’t have to transfer termination payments into an ADF, but they can be useful if you want to use the money to boost your retirement savings in a tax-effective, super environment. (Termination payments can’t be transferred into a regular super fund).
ADFs act like a regular super fund, holding and investing your money on your behalf, but they can only receive termination payments and not any other contributions.
Your ADF account balance must be paid out when you reach age 65 or another condition of release. It must be paid as a lump sum, not a pension.
Small APRA Funds
Small APRA Funds (SAFs) are super funds regulated by APRA with less then five members. They are essentially self-managed super funds but with a professional trustee, rather than member trustees or a corporate trustee with members as directors.
Because all trustee responsibilities and compliance obligations are in the hands of an independent trustee, SAFs can be useful for:
- People who want control over their super without the trustee responsibilities
- Elderly people who have lost the capacity to run their own fund
- A disqualified person who is ineligible to run a SMSF but can have a SAF
- People moving overseas who can no longer be a trustee of an SMSF.
Retirement Savings Accounts
Retirement Savings Accounts (RSAs) are super accounts offered by some but not all banks, credit unions, building societies and life insurance companies. They offer a simple, low cost way to save for retirement, but the trade-off is low returns that are only slightly better than the interest you receive from regular bank accounts.
RSAs are capital guaranteed, which means the balance can only be reduced by fees and charges, not investment losses. They are fully portable, so the balance can be transferred to another RSA or super fund at any time. They can also accept a transfer of funds from a super fund and are subject to the same laws as a super fund, but they are structured as bank accounts, not trusts.
These accounts are becoming rare now that most people automatically become members of a super fund when they start work. They attracted a brief upsurge in attention in the wake of the GFC when people were looking for the safety of a capital guarantee, but they have faded into the background since.
This is a very common question, especially now that industry and public sector funds dominate the annual lists of top-performing funds compiled by research groups such as Chant West and SuperRatings.
While most of the large industry and public sector funds these days are open to anyone, some of the smaller funds are still restricted to an industry or profession.
For example, UniSuper is generally restricted to employees of participating universities and research bodies. This allows the fund to concentrate its services, such as financial advice, on campuses to be near members. While Legal Super focuses exclusively on the legal community.
But say you work in the media. Is Media Super likely to be better for you than, say, REST which was originally for retail workers? Or Australian Super which is so big now – with 2.2 million members or one in 10 Australian workers – that few can remember who it was originally set up for? All are public offer and none offer services that cater exclusively to one industry or profession.
If you are choosing between two funds with a similar performance history and ranking, other services and benefits may come into play that don’t necessarily have anything to do with your line of work. Things such as personal financial advice, access to direct shares or a sustainable investment option, insurances or an easy transition into pension phase with a good pension product.