Types Of Superannuation Funds.
There are three types of superannuation funds that are most common in Australia. These are the Industry Super Fund, the Retail Super Fund and the Self-Managed Super Fund.
Industry Superannuation Funds:
These funds are established for employees within a specific industry, such as construction, healthcare or education, however they are generally open for people of any industry to join. Industry funds generally are the most cost-effective options for people starting out in the workforce as there are usually low flat fees on these accounts. However, industry funds do not usually cap their fees, so on higher balances they tend to be expensive. In an industry fund your investments are pooled with other people and unless you actively change it you will be placed in the default fund which may not be right for your situation. Used correctly though an industry fund can be a powerful wealth creation tool.
Retail Superannuation Funds:
These funds are typically offered by financial institutions such as banks, insurance companies or investment firms. They are open to the general public and allow individuals to choose from a range of investment options. The investments are usually held on the individual level and you are able to invest in listed securities, managed funds, cash and term deposits. Provided you do not want to invest in assets such as residential or commercial property, retail super funds offer the majority of benefits of a self-managed super fund without the compliance costs or headaches. Additionally, retail super funds cap their administration fees over a certain amount and some even allow you to aggregate fees between family groups. Although retail funds have been slammed in the media due to their for-profit status (as opposed to industry funds), used correctly they may be the best fund for your situation and cheaper than their industry fund alternative.
Self-Managed Superannuation Funds:
SMSFs are private funds managed by individuals or a small group of individuals for their own retirement benefit. They offer the most flexibility and control of the three superannuation fund styles allowing the trustees to invest in a wide variety of assets such as shares, bonds, cash, business real property, commercial and residential property and even private businesses. However, these funds come with additional costs and compliance obligations that in other superannuation funds are paid for by the fund such as accounting fees and audit costs. Additionally, as the trustee it is your responsibility to ensure the fund is compliant will all regulations. SMSFs are generally seen as the gold standard in super funds but are probably unnecessary unless you have a specific circumstance.
There is no one size fits all answer when it comes to which super fund is best in your situation. If you would like to speak to someone about your superfund set up please don’t hesitate to reach out and speak to James or myself today.
