Self-Managed Superannuation Funds v Industry and Retail Funds – What’s the Difference?
Planning for retirement starts when you choose your first superannuation fund. It can be stressful when there are so many options. Choosing between a self-managed super fund (SMSF) and a regular fund can be tricky.
To help you from second-guessing what fund is right for you, we’ve put together some helpful information about SMSF v industry and retail superannuation funds so that you can make the decision that’s best for you. After all, superannuation sets you up for the rest of your life.
Note: This post exists purely as a source of information and should not be considered legal or financial advice from Claimify. It is always best to seek advice from a relevant advisor or expert before making any decision financial decision.
What is an Industry Super Fund?
An industry super fund is a not-for-profit organisation that was initially started by trade unions and employer associations for various industries. These days, most industry superannuation funds are open to the public.
As not-for-profit organisations, all profits are reinvested into the funds, resulting in returns directly to members, rather than external stakeholders. This typically allows them to charge lower fees than other funds and generate higher returns on average. You may have heard of some well-known industry funds, including Sunsuper, Cbus, and AustralianSuper.
What is a Retail Super Fund?
A retail fund is a superannuation fund offered by investment companies and banks. The main difference between these funds and an industry fund is the ‘not-for-profit’ element. Retail funds are owned by companies like NAB, ANZ, ING, and Suncorp, and as a result, hold an internal incentive to perform well for their shareholders.
Retail funds typically offer more variety across investment options compared to industry funds, but with that tend to come higher fees.
What is a SMSF?
A self-managed superannuation fund is a private super fund you manage yourself with a maximum of six different members, known as trustees. When you elect to manage your own super, you’re responsible for putting the money into your own SMSF. Moreover, you have the power to choose the investments as well as the insurance.
The freedom to choose and manage superannuation yourself is the main reason people elect to go with a SMSF. With a maximum of six members, each member is considered a trustee of the fund. However, there are instances in which a person will elect to engage a corporate trustee to handle the fund.
What are the Differences Between a SMSF and Industry/Retail Super Funds?
Besides being managed differently, there are several other key differences between SMSFs and industry/retail superannuation funds. For this comparison, we’ve broken it down into six different categories:
- Investment Strategy
- Industry/Retail Funds – In terms of responsibility, the fund is managed by the licensed trustee, so there is minimal risk for you.
- SMSF – Trustees must ensure the fund complies with tax and superannuation laws enforced by the ATO. The ATO regulates SMSFs, and trustees who are deemed to have not complied with such laws could be subject to a range of different actions and/or penalties outlined by the ATO.
- Industry/Retail Funds – Typically, there is no limit on the maximum number of members for funds managed by licensed trustees.
- SMSF – Maximum of four members, and each member/trustee is equally responsible for managing the fund.
- Industry/Retail Funds – Typically speaking, you don’t control what assets your money is invested in. However, you have control over the range of investment options, with most funds offering options from conservative to growth. For context, according to moneysmart, a growth investment mix may consist of approximately 85% in shares and property and 15% in cash and fixed interest. On the other hand, a conservative investment mix will have about 30% in shares and property with the other 70% in cash and fixed interest.
- SMSF – You have complete control across all investment decisions, giving you the power and freedom to implement your fund’s investment strategy however and wherever you choose.
- Industry/Retail Funds – Most will offer life insurance, income protection, and total and permanent disablement (TPD) insurance. These types of superannuation insurance often cost less than going through an independent insurance provider because the funds can obtain and pass on discounted premiums to members.
- SMSF – People who elect to go with a SMSF must decide whether to purchase insurance or not. In some cases, the premiums for doing so may be higher than that of an industry or retail fund.
- Industry/Retail Funds – Through your industry or retail fund, you will have access to the Australian Financial Complaints Authority (AFCA) and, as such, you have access to an external provider to assist with any grievance you may have. This can include seeking compensation for any wrong or shortcoming on the fund’s part.
- SMSF – If a dispute or disagreement arises, trustees must resolve it through traditional dispute resolution techniques or, in many cases, a court hearing. All disputes come at the trustees’ own expense.
- Industry/Retail Funds – These funds are regulated by the Australian Prudential Regulation Authority (APRA) and typically require zero engagement from members.
- SMSF – Self-managed funds are regulated by the ATO, who trustees must engage with.
Although both do similar things, SMSFs and industry/retail funds generally attract different people for different reasons. Industry/retail funds may be suited to you if:
- You’re not willing to invest the time to manage a SMSF
- The legal risks involved are too great
- Your superannuation balance is considered low to medium
- Your financial literacy is below average
On the other hand, a SMSF may be suited to you if:
- Your superannuation balance is high
- Managing the fund will not be an issue – you have the time and knowledge
- You understand the legal risks attached to a SMSF
- Your financial literacy is above average
With all that said, choosing the correct type of superannuation fund will always come down to your own personal circumstances and what works best for you.
There are many options available to you, so it’s important to analyse them in detail, do your due diligence and not rush into anything.
Regardless of what fund you choose to go with, always consider getting professional advice before making your final decision.