Types of Super Funds

here are many different types of super funds, each with their own benefits and structures. It is worth understanding them as it will offer you more options and alternatives as you approach retirement.

The main types of super funds are:

• Accumulation funds
  • Retail funds
  • Corporate funds
  • Industry funds
  • Retirement savings accounts
  • Self managed super funds (SMSFs)
• Defined benefit funds

Accumulation funds

This is the most common type of fund. The final benefit will depend on how much you and your employer contribute and how much the fund earns – minus any fees, costs and taxes - which accumulate over time.

Retail funds

These are accumulation funds that are open to everyone and are usually offered by financial institutions and their financial planning networks.

They usually offer:

• a wide range of investment options managed by specialists
• competitive fees and
• high level of service.

They are usually offered through financial planners who may charge a service fee for managing your fund.

Corporate funds

These are funds arranged by employers for their employees.

These can be structured as defined benefit funds or accumulation funds.

Each corporate fund will have its own features and benefits. Generally, corporate funds will offer competitive fees and insurance cover, and where employers offer a higher contribution than 9%, it is often conditional on joining their fund.

Industry funds

These funds can be restricted to members in a particular industry, although many have become retail funds.

They usually offer a more limited range of investment options, usually between five to 15, and arenot-for-profit which means any profits are reinvested in the fund.

Retirement savings accounts (RSAs)

Retirement savings accounts were introduced as a way to make saving for retirement simple. They are available through banks, credit unions and other financial institutions, and were initially offered with passbooks.

They tend to focus on very conservative investments such as fixed term investments and cash where returns are low and the capital is guaranteed. In return, they tend to charge a low flat fee, or none at all, and offer no investment choice or insurance.

Self managed super funds (SMSF)

These are also known as do-it-yourself (DIY) funds. As the name infers, these are funds you set up and run yourself, which gives you greater control and the ability to be your own investment manager.

They are quite complex and cater best for people who have:

• time and financial skills to manage and monitor the fund
• a large amount of assets to invest – typically over $250,000
• a variety of assets, such as investment property and shares
• time to find their own life insurance, income protection and total and permanent disability cover and a willingness to pay premiums based on individual rates rather than group rates
• an expert they can trust to administer the fund.

You can have up to four members in your SMSF and you will all need to be trustees or directors of the trustee company.

The Australian Taxation Office (ATO) and the Australian Securities and Investments Commission (ASIC) have information about what you need to know on the ATO website can provide more advice.

Defined benefit funds

These are usually only available to long-term public sector employees and corporate fund members. New employees are generally offered an accumulation fund.

Defined benefit funds offer either a lump sum based on a multiple of your final average salary (eg five times your final average salary) or an ongoing pension of around 75% of your final salary until you die.

They are usually considered quite generous.

The type of fund you choose will depend on how much time and money you want to invest in your super. Fees are a major concern to most investors, but performance over time is also important.

At a glance

• Funds on offer today tend to be accumulation funds.
• This includes retail funds, corporate funds, industry funds and RSAs.
• Self managed super funds give you more control but are complex and time consuming.
• You need to consider a range of factors when choosing your fund.