Types of Superannuation
There are hundreds of different superannuation fund providers in Australia, but the vast majority of them fit into a small number of different categories.
The three main categories of superannuation funds in Australia are industry super funds, retail super funds, and self managed super funds. There are a number of other categories, but the three major categories cover the majority of super funds in Australia.
Industry Super Funds
These are generally non-profit organisations, with any surplus profits returned to the fund’s members in the form of reduced fees. Whilst industry funds are not owned by corporate institutions, they can sometimes have an alignment or associated with a trade union.
Many industry funds are based around a particular industry or occupation, such as CBUS who deal with workers in the construction and building industry, and HESTA which caters for workers in health and community services. There are also a number of industry funds which cater for workers in all industries.
Industry superannuation funds generally market themselves around low fees and the fact that they do not pay commissions to financial advisers. This point of difference may be eroded in coming years as all commissions on superannuation are phased out.
Retail Super Funds
These are in many ways similar to industry super funds, however they are generally structured in more of a corporate manner, and are often owned by large financial institutions. Unlike industry funds, retail super funds do aim to produce profits through fees and other revenue sources.
Retail superannuation funds are often associated with financial advisers and planners, as the funds are commonly recommended to clients by their financial adviser who will generally receive a commission for doing so.
There is the potential for the financial adviser’s recommendation of a retail fund to be influenced by the commissions received, however all financial advisers are required by law to detail any benefits in writing along with disclosing any potential conflicts of interest.
The benefits of retail super funds can include access to a much wider range of investment options. Retail funds will generally provide access to the investment options of a large range of external fund managers, whilst an industry fund may restrict their funds to only one external fund manager or even just their own in-house investment managers.
Another benefit of retail superannuation funds is the availability of comprehensive personal insurance products. Industry funds generally offer personal insurance options as well, however these can be more restrictive due to their wholesale nature. Retail funds enable the use of full retail insurance policies which are more expensive, but do have more features.
Self Managed Super Funds (SMSF)
The last of the three major super fund categories are self managed super funds. An SMSF puts full control into your own hands, and allows you to make your own investment decisions either independently or with the guidance of a financial adviser.
Whilst an SMSF does give much greater flexibility, it is also a much more complex option than either an industry super fund or a retail super fund. With an SMSF you must have a licensed professional undertake an annual compliance audit of the fund as well as producing an income tax return.
Besides the increased control that an SMSF gives, another benefit can be through reduced fees. With an industry or retail fund you are generally charged a percentage of your total balance, however with an SMSF you generally pay a fixed fee for the administration services.
This means that if your super fund is of a sufficient size, holding an SMSF can be the cheapest option. On the other hand, if you only have a small super balance, the cost of an SMSF can be much greater than if you were in an industry or retail fund.
The superannuation fund that is right for you will depend on your own personal needs and objectives, and there is no single fund which is best for everyone.