The majority of Australian workers are free to choose their own superannuation fund, and while there are many funds available, for many people the choice will come down to an industry or retail fund. So it’s worth knowing what’s involved with both.
Retail and industry funds both provide members with a tax-friendly environment to grow their retirement savings. Similarly, all industry and retail funds have a trustee that makes decisions about the insurance and investment services of the fund. This frees members from worrying about the day to day management of their super savings.
From here there can be key differences. Industry funds operate on a ‘mutual’ basis, where any profits are put back into the fund for the benefit of members. This typically means these funds charge low fees.
The original investment offerings of industry funds were simple and targeted at the average member, providing relatively few choices. Over time, there has been a gradual addition of further investment options, to ensure members have a broader choice.
Most industry funds provide members with a simple scale of death and ‘total and permanent disablement’ (TPD) insurance cover, which can be purchased for premiums usually around $1.00 or $1.50 per week for each unit of cover.
Industry funds often have their own in-house or ‘preferred’ financial advisers who are available to provide general advice (at no cost) or personal advice (at cost to the member).
By contrast, retail super funds are run by large organisations like banks or insurance companies. Their shareholders expect to receive a return on their investment, and a portion of the profits derived from the activities of retail super funds goes to these shareholders.
The range of investment options offered by retail super funds is usually extensive, and there is often a much stronger focus on promoting advice services than with industry funds. Anecdotally, retail fund members are far more likely to receive professional financial advice than industry fund members.
Members of retail super funds can select their required insurance cover for death, TPD or income protection. Insurance cover is normally subject to some form of medical assessment, and this can mean a more appropriate level of cover beyond the basics.
There is consistent rivalry between retail and industry funds especially when it comes to investment returns. Interestingly, a report on super fund returns issued by the Australian Prudential Regulation Authority (APRA) earlier this year showed that no single super fund stayed on top of the league table across one, five and ten-year periods. Equally, the biggest funds – industry or retail, didn’t always score the top returns.
By their nature, investment earnings are not set in cement and they will always vary from year to year even within the same fund. That’s why, when it comes to choosing a super the fund, it makes sense to look at the factors that are certain – like the fees you’ll pay, the services offered by the fund that are genuinely useful to you, and how much you’ll pay for the level of insurance that’s appropriate for your needs.