Super is the largest investment for many Australians and yet around 80% of people leave it to their employer to choose where their retirement nest egg is invested!
With over 350 superannuation funds to choose, catering to different needs and levels of sophistication – the choice to find the right fund can be daunting.
So let’s start at a high level. There are five types of funds in Australia, with most people only having a choice of only three. These are as follows:
- Retail – funds run for profit by financial institutions such as banks, financial planning groups and fund managers. Used by most advisers (not us) as they can charge ongoing asset based fees e.g. Colonial, BT, Macquarie
- Industry – usually cater for workers from a particular industry, although many are now available to anyone e.g. AustralianSuper, HOSTPlus, HESTA
- Public Sector – for public sector employees in local government, the Commonwealth Government, State public services, public healthcare and public universities e.g. Public Sector Superannuation Scheme, Unisuper
- Corporate – funds managed on behalf a certain corporate organisation for their employees e.g. Telstra Super
- Self-managed (SMSF) – the largest and fastest growing segment of the Australian superannuation system, where individuals can invest their own superannuation subject to certain rules.
Corporate and public sector funds will generally require you to be employed by a particular organisation, so that effectively cuts these out to non-employees.
Retail funds offer many features and options, but this choice and flexibility comes at a higher price that erodes investment returns. This explains why over the last 5 years retail funds have been losing market share to industry funds and the SMSF sector. If you have one of these, it should be reviewed.
Industry funds have taken the low cost moral high ground and a number of them dominate the investment performance tables. Industry funds are owned by their members and profits are retained and passed back to members through lower fees. Out of all of the managed superannuation options, these are worth the closest look, but quality of management does vary and any choice of fund should be reviewed.
The introduction of the MySuper has resulted in the retail funds putting out low cost MySuper funds in direct competition with industry funds. However, the new retail offerings do not have an investment track record and largely use passive investments, which questions the value for money behind these offerings. Again, if you have one of these it will be worth taking a closer look.
If you have a reasonable amount in super and its growing through your contributions, then an SMSF becomes a real option for you and other members of your family. With an SMSF you control the assets, which could be many things from shares, an investment property or even just keeping it safe in the bank. You can lower your fees with an SMSF as well as bring an an element of tax planning around your investments. However, an SMSF does have obligations, so it’s worthwhile paying someone to take care of the administration and getting sound investment advice.
No matter what option you choose, one thing is for sure, not taking an active interest in where your super is invested can be costly. It’s not uncommon to look at a client’s current situation and see the opportunity to save them tens of thousands of dollars in fees alone, let alone putting their money in investments that have a better chance of growth. In order to find out more, contact us and book a FREE strategy review and we’ll answer all of your superannuation questions.
The information provided should not be considered personal financial advice as it is intended to provide general advice only. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions.