There are many types of super fund, each is a bit different. Knowing the different types of fund will make it easier for you to choose a fund. Super funds can be grouped into a number of categories. Features differ in each category.
Many super funds offer a new type of account called MySuper. MySuper will eventually replace existing default accounts offered by super funds. A default super account is one chosen by your employer if you don't choose one yourself.
MySuper accounts offer:
- Lower fees (and restrictions on the type of fees you can be charged)
- Simple features so you don't pay for services you don't need
- Single or life stage investment options
- MySuper will only be offered for accumulation funds and not for defined benefit funds. Retail, industry and corporate funds can all offer MySuper accounts.
Retail funds are usually run by banks or investment companies. Features include:
- Anyone can join
- They often have a large number of investment options, sometimes in the hundreds
- They are usually recommended by financial advisers who may be paid for their advice by fees and/or a commission
- They are accumulation funds
- Most retail funds range from mid to high cost, but some are now offering a low cost or MySuper alternative
- The company that owns the fund aims to retain some profit
The larger industry super funds are open for anyone to join. Some others are restricted to employees in a particular industry. The main features of an industry fund are:
- They usually have 5-15 investment options, which will meet most people's needs
- Most funds are accumulation funds. A few older funds still have defined benefit members
- They are generally low to mid cost funds although some have high fees
- Some offer MySuper accounts
- They are 'not for profit' funds which means all profits are put back into the fund for the benefit of all members
Public sector funds
Public sector funds were created for employees of Federal and State government departments. Most are only open to government employees. The main features are:
- Some employers contribute more than the 9.5% minimum
- A modest range of investment choices that will meet most people's needs
- Many long-term members have defined benefits, newer members are usually in an accumulation fund
- They generally have very low fees and some offer MySuper accounts
- Profits are put back into the fund for the benefit of all members
A corporate fund is arranged by an employer, for its employees.
Some larger corporate funds are 'employer sponsored' funds where the employer also operates the fund under a board of trustees appointed by the employer and employees.
Other corporate funds will be operated by a large retail or industry super fund (especially for small- and medium-sized employers).
Features of these funds include:
- Funds run by the employer or an industry fund will return all profits to members. Corporate funds run by retail companies will retain some profits.
- If it is managed by a retail or industry fund it may offer a wide range of investment options
- They are generally low to mid cost funds for large employers but may be high cost for small employers
- Some older corporate funds have defined benefit members, most others are accumulation funds
Eligible rollover funds
An eligible rollover fund (ERF) is a holding account for lost members or inactive members with low account balances. These funds often have low investment returns and may charge high fees.
Your money is likely to grow faster if you consolidate your ERF with your active super fund.
Defined benefit fund
In a defined benefit fund, your retirement benefits are usually determined by factors such as your age, final salary
at retirement, and how many years of service you had with your employer. Your final benefits are not reliant on investment returns and are generally guaranteed by the fund.
An accumulation fund accumulates contributions and earnings to provide a benefit for you. Your final retirement benefit is therefore dependent on the amount of contributions made and the earning rate of the fund.
Accumulation funds provide greater control over the selection of investment options as well as greater transparency of the fund’s administration. In contrast to defined benefit funds, investment returns are not guaranteed. As a result, the investment balance of an accumulation fund can go up and down with movements in investment markets.
Article originally appeared at https://yourfinancialwellness.com.au/
Any advice given is of a general nature only and does not take into consideration your personal circumstances. Please consider the appropriateness of the advice before acting.