As of March 2018, end of quarter, there are 28.8 million superannuation accounts. Total of 2.6 trillion superannuation assets, an increase of assets by 6.8% from March 2017 to March 2018 (The Association of Superannuation Funds of Australia 2018). Superannuation funds are one of the most popular investment vehicles in Australia at the moment, easily confirmed by the aforementioned statistics. Due to the presence of many different types of superannuation entities, picking the right superannuation to invest your funds in is quite complex and confusing. To make it easier and simplify the process of choosing the best suited superannuation fund and also at the same time to gain a better understanding of how superannuation in Australia works, we have listed the different types of superannuation funds and an overview for each type.
Public Sector Fund
These funds are for employees working in Federal and State government departments. A list of different funds available can be assessed through government site – https://www.csc.gov.au/. They are often defined benefit superannuation funds where the investment risks are borne by the employer (Banister et al 2016). Fees for these funds are usually quite low since costs are subsidised by the government or government agent. At the end of quarter March 2018 there were 3.6 million accounts with $582 billion assets (The Association of Superannuation Funds of Australia 2018). These funds, of course, are only available to government employees.
Retail Super Funds
Retail Super Funds are the most popular type of superfunds, with 12.3 million accounts (The Association of Superannuation Funds of Australia 2018). Retail Super funds offer superannuation funds to public, run by financial institutions primarily for profit, often run by either banks or large fund management institutions (Banister et al 2016). Retail super funds have many advantages; fund members can change employers but still remain with the same super fund, a good option for self-employed people who do not have access to employer-sponsored funds. Another benefit of investing in retail super is that these super funds are managed by large financial institutions and there are additional features such as packaged insurances. However, the funds have higher fees and there is a chance of the rules of the fund being less flexible.
Industry funds, as its name suggests are funds particular to a certain industry and are managed by not-for-profit organisations, offering memberships to employees of that industry (Banister et al 2016). There are 11.3 million funds worth $599 billion (The Association of Superannuation Funds of Australia 2018). Trustees of these funds are typically both employees and employers. Compared to retail funds, industry funds are more focussed on infrastructure assets. Fees are also lower compared to retail funds. Employees have the freedom to change employers without changing funds. These funds are known to be a bit more conservative with their investments, which can be considered as a downside or benefit depending on what you want from your super. Another con of these funds is they generally offer lower levels of death and disability insurance cover.
Corporate Super Fund
These funds are sponsored by the employer, offering memberships to their employees. Large corporate funds tend to have an employer who would manage the fund under a board of trustees who are appointed by the employer and the employees (ASIC 2017). Other corporate funds, such as super funds by small and medium sized employers, could be included as a separate part of a large retail or industry super fund (ASIC 2017).
Self-Managed Super Fund (SMSF)
SMSFs, also known as Do it yourself funds, are private funds with less than 5 members. Members of the fund also must act as the trustees, therefore are responsible for managing the fund and also abiding by the relevant rules and regulations. This is a good option for individuals with large superannuation balances e.g. over 150,000, since there would be comparably lower fees in percentage terms on larger balances. Since the fund is managed by yourself, there is greater flexibility with investment options, you can even invest in properties but there are strict laws that apply to the investments made. On the flip side of the coin though, Starting SMSF and maintaining one can have a lot of additional costs since you would need counselling and guidance from a lot of different professionals such as lawyers, accountants, financial planners and also SMSF approved auditors etc. It also takes a lot of time to manage the fund. If your superannuation balance is low, then considering a different fund like retail or industry fund would be more cost efficient. Also there is no access to super complaints tribunal nor access to the governments financial funding for fraud or theft. In fact, in June 2018 a ASIC released its findings from a review of the SMSF sector, 38% said running their SMSF was more time-consuming than expected, 32% said the set-up and running costs were more than they expected and 29% incorrectly thought they were entitled to compensation for theft and fraud involving their SMSF (ASIC 2017). Therefore, it is important to get as much knowledge as possible and weigh out the pros and cons thoroughly before starting a SMSF.
Eligible Rollover Fund (ERF)
These are funds that hold assets for inactive members or uncontactable members with low account balances. These funds may have lower or high fees and may have a higher or a lower return (ASIC 2017). Superannuation funds may transfer lost or inactive accounts into these funds (ASIC 2017).
Small APRA Fund (SAF)
Small APRA fund is a similar to SMSF with slight differences in structure that could be beneficial or not depending on the individual’s preferences. It is also a fund which can have only less than 5 members.
Unlike SMSF which is regulated by the ATO, SAF is regulated by APRA, even though the same super legislation applies to both. APRA appoints an APRA approved trustee to manage the super fund.
Smaller funds that do not apply for SMSF can form a SAF (Australian Financial Review 2015). Also prevents issues such as a trustee being disqualified due to bankruptcy or not meeting the residency test. Whereas with SMSF members do not have access to either superannuation complaints tribunal or to government compensation for fraud or theft, with SAF you have access to both (Australian Financial Review 2015).
As mentioned before, members are not the trustee and the trustee is appointed by APRA. Therefore SAF is a great option for anyone looking to have greater control of their investments but do not want to go through the hassle of managing the fund and undertaking the responsibilities that comes with being a trustee (Australian Financial Review 2015). Also if you want to switch to a different type of fund from a SMSF, unlike moving to a retail or industry fund which would trigger a CGT event and lead to CGT losses, moving to a SAF does not trigger a CGT event. All that happens is that current trustees retire and a professional licensed, approved by APRA, trustee is appointed. The main downside is that fees are payable to trustee which is an additional cost compared to a SMSF.
As mentioned before there a many types of superannuation funds and we have only gone on to explain briefly the most popular types of superfunds. Within each type of funds there could be so many more different varieties of superannuation products and also there are less popular, unique types of super funds as well. Before making any decision about changing supers or staying with your current, it’s always a safer option to converse with a financial planner or any other relevant professional.
- Banister, PM., Campbell, J., Day, JK., Fenton, N., Fitton, G D., Flack, G., Graham, SD., Hayes, TP., Howard, S., Jones, SC., Kiddell, RJA. & Prestney, SJ. 2016, Australian Financial Planning Handbook 2016-17, Thomas Reuters, Sydney.
- Lewis C. 2015, Should you ditch your SMSF for a small APRA fund?, Australian Financial Review, retrieved 31 August 2018.
- MONEYSMART 2017, Types of super funds, ASIC, retrieved 29 August 2018.
- The Association of Superannuation Funds of Australia 2018, Superannuation Statistics, The Association of Superannuation Funds of Australia, retrieved 29 August 2018.