When it comes to saving for retirement, there’s no shortage of options, but how can you decide which super fund is right for you?
There are a number of important differences between super funds; self-managed super funds, retail super funds, and industry super funds. By understanding what these differences are and how they affect your wealth accrual, tax obligations, and investment opportunities, you will be able to choose the right super fund to suit your financial needs and goals for the future. The ATO has provided tools that compare MySuper products for your ease of use. MySuper accounts typically offer lower fees, simple features, either a single diversified or a lifestyle investment option. Defined benefit funds are excluded from the MySuper product.
Self-Managed Super Funds
A self-managed super fund (SMSF) is a superannuation fund that you run by yourself alongside up to four members (trustees). With an SMSF, you’re responsible for managing your own wealth, investments, as well as ensuring that you adhere to relevant legal requirements and arranging for an independent SMSF Audit.
Self-managed superannuation funds offer a range of benefits that make them a popular choice for many. These benefits include:
- access to a broader range of investment opportunities
- concessional tax rates and flat-fee service charges in place of percentage-based fees
- the ability to maintain a high degree of control over your finances
- options for estate planning and asset protection and accumulation
- opportunities to grow your wealth.
As with any super fund, SMSFs do have a few drawbacks. These include:
- time commitment
- complexity requiring a high level of financial literacy and, often, with the support of a financial advisor
- high running costs
- extensive annual auditing and reporting obligations
- responsibility for remaining up to date and compliant with changing superannuation laws and requirements.
Retail Super Funds
Retail super funds are funds offered by banks and investment companies. With a retail super fund, your superannuation fund is in the hands of the company that owns it, so you can take more of a back seat when it comes to the ins and outs of managing it.
Retail super funds have many benefits for members, including:
- a wide range of investment options (though not as wide as with an SMSF)
- low-cost super alternatives often available to reduce expenditure
- participation of the company that owns the fund in generating profit for shareholders
- limited time commitment needed to maintain and build your funds.
Retail super funds also have some disadvantages. These include:
- medium to high associated costs
- the company that owns the fund aims to retain some of its profit
- lower level of control over your fund and investments.
Industry Super Funds
Industry super funds are now available to most members of the public, not just those who work in certain industries. Industry super funds are not-for-profit, reinvesting all profits back into the funds. With an industry super fund, your superannuation remains under the operational control of your fund provider.
Industry super funds offer a range of benefits, making them a popular choice. These benefits include:
- low overall fees
- reinvestment of profits into the fund for the benefit of members
- legislative compliance is managed by professionals, not members
- industry-tailored funds available to suit the specific needs of workers in certain industries
- limited time commitment needed to maintain and grow your superannuation wealth.
Industry super funds have some disadvantages, including:
- limited investment opportunities
- a low level of control over investments
- limited freedom when it comes to operating your fund.
Other Types of Super Funds
There are a few other superannuation fund types that exist to serve specific niches.
Public sector funds are available for government employees. These funds usually have low fees and few investment options. Profits are fed back into the fund, offering opportunities for wealth accumulation.
Corporate funds are arranged by employers on behalf of their employees. These funds are generally managed by big superannuation providers and offer low to medium fees with a wide range of investment opportunities. Whether corporate funds keep a portion of profits or return all profits to members depends on who they are administered by.
There are many things to think about when choosing which type of superannuation fund is right for you. Consider your existing wealth, your investment plans, your time availability and financial knowledge, and your desire for control over your super fund’s operation. With these things in mind, you can make a smart decision to prepare for your financial future.