While the core benefits of superannuation are wide-ranging, understanding the nuances within the industry can help members get more out of their super. The industry is diverse, with each super fund offering unique service propositions to members, which reflect the broad ethos of the fund.
So, how do super funds differ, and what are some of the key distinctions that members should be aware of before selecting their fund?
Funds offer two benefit schemes: accumulation benefits and defined benefit schemes.
Accumulation funds generate wealth on behalf of members throughout the ‘accumulation phase.’ Ultimately, the value of super in these funds is determined by the sum of contributions and the returns generated by investments.
Meanwhile, defined benefit schemes, which are increasingly uncommon in the Australian super system, benefits are determined by a pre-set formula, which according to ASIC’s MoneySmart website may include:
- The money put in by members and their employers.
- The average salary over the last few years before retirement.
- The number of years worked for an employer.
Super funds are also split into different categories defined by the employment sector they service. These categories include:
- Retail
- Industry
- Public sector
- Corporate
- Self-managed super funds (SMSFs).
Retail funds
Retail super funds are typically owned and operated by banks or other financial institutions. Membership is open to the wider market, with many referred to a retail fund by financial advisers.
Retail funds are known to offer a variety of investment options to members, developed by investment analysts and portfolio managers to target a broad set of member objectives. However, retail funds typically charge medium to high fees, which may include adviser and platform fees when a member is referred.
According to the latest statistics (September quarter 2023), 72 retail super funds are operating in Australia. Retail funds service approximately 6.5 million members and manage an estimated $690 billion in assets.
Industry funds
Unlike retail funds, many industry funds are exclusive, only offering membership to Australians working in a particular sector (e.g. health, education or hospitality). However, larger industry funds may open membership to non-sector employees.
Industry funds mostly adopt an accumulation-style benefit scheme, with only a limited few continuing to offer defined benefit arrangements. Given industry funds generally offer default MySuper products, they charge relatively lower fees relative to other fund types. Unlike retail funds, industry funds reinvest profits in the fund.
As of 30 September 2023, approximately 22 industry funds were operating in Australia, serving approximately 13.1 million members and managing just under $1.2 trillion in assets – more than any other super fund category.
Public sector funds
Public sector funds were initially set up to exclusively manage the super contributions paid to state and federal government employees. However, some funds have since opened membership to the broader market.
Investment strategies offered by public sector funds are limited, with some funds offering MySuper products. As such, fees are typically low to moderate. Most member contributions are placed in accumulation funds, with just some longer-term employees placed in defined benefit schemes. Like industry funds, public sector funds reinvest profits for the benefit of members.
According to the latest data, 31 public sector funds represent approximately 3 million members and manage roughly $668 billion in assets.
Corporate funds
As the name suggests, corporate funds are set up by corporations on behalf of their employees. Larger funds are operated by an appointed board of trustees, while some smaller funds are run by retail or industry funds but are only accessible to the company’s employees.
Larger corporate funds typically offer a broad range of investment options. Member costs vary depending on the size of the fund, with smaller funds typically incurring higher costs. On average, however, corporate funds are low to medium cost. Funds run by employers or industry funds usually return profits to members, while retail funds may keep some of the profits generated.
Corporate funds are the smallest of the fund categories, with just nine funds across Australia, representing approximately 200,000 Australians and managing roughly $57 billion in assets.
SMSFs
Finally, SMSFs are private, independent funds managed by no more than six members. Most SMSFs are managed by trustees but many delegate management of the fund to a corporate trustee.
SMSFs provide members with greater flexibility over their investments, ensuring the strategy reflects the unique interests and circumstances of individual members. However, SMSF management is complex, with trustees often tasked with juggling a multitude of responsibilities such as market analysis and tax compliance.
There are just under 612.000 SMSFs in Australia, made up of a combined 1.1 million members and collectively managing just under $900 billion.
After understanding the super category that best reflects a member’s circumstances, members can then search among the subset of funds for the right solution to prepare them for their retirement journey.
