Choice of fund is one of the biggest decisions you can make around your superannuation. Which fund, or funds, hold your savings can have a massive impact on your final retirement balance so it’s a good idea to do some research before settling on a super fund.
What is Choice?
Choice in superannuation means that you have the right to decide into which fund your superannuation is paid. Each fund has different fees, investment options and benefits, and offers a different return on your money. Most Australians are free to choose a fund that best suits their needs.
Will I have Choice?
Generally you will be entitled to Choice and must be offered access to choice of fund by your employer for your SG contributions. Your employer will be required to pay a penalty if this is not offered.
However, there are some people, usually those who are covered by industrial agreements and members of certain defined benefit funds, who are not able to choose their super fund.
If you’re unsure whether you should be entitled to Choice, check with your employer or the Australian Taxation Office (ATO).
What does my employer have to do?
To choose a superannuation fund, you must complete a standard choice form, which is issued by the ATO.
Your employer is required to give you a standard choice form:
- Within 28 days of beginning a new job.
- Within 28 days of your employer becoming aware that the super fund currently receiving your SG contributions becomes ineligible to receive them.
- Within 28 days of your employer switching their default fund if your SG contributions are currently being paid into this fund.
There is no deadline by which you have to make a choice and you don’t ever have to make one if you don’t want to. The default fund is the superannuation fund an employer pays your superannuation guarantee into if you decide not to make a choice. Default funds vary from employer to employer.
Did you know? You can decide to choose, or change, your fund at any time but your employer is only obliged to act on your choice once a year.
Different types of funds
You can play an active role in managing your superannuation by choosing the fund in which it will accumulate. There are several different types of funds you can choose from, although some have restrictions on who can become a member. The fund types you will have to choose from are:
- Industry funds
- Retails funds
- Self-managed superannuation funds (SMSFs)
- Corporate funds
- Public sector funds
- Eligible rollover fund (ERF)
- Retirement Savings Account (RSA)
The accounts within these funds are generally accumulation accounts, although some of the funds may provide a defined benefit.
The most common types of funds in Austraia are: industry, retail and SMSFs.
Accumulation v Defined Benefit accounts
These days, accumulation funds are the most common type of fund and most Australians have their super in this type of fund. Like the name suggests, money in these accounts accumulates and grows over time. Your final retirement balance is determined by:
- the amount contributed;
- plus/minus investment earnings;
- minus the amount of fees you are charged; and
- minus any insurance premiums you pay through your fund.
The main difference between this and a defined benefit (DB) is that you, as the accumulation account holder, bear the risk of investment. With a DB, your employer bears all the investment risk.
Defined benefits are generally found in corporate or public sector funds and most are now closed to new members. Your final retirement balance is determined by:
- the amount contributed; and/or
- the length of time you’ve been a member of the fund; and/or
- how much salary you are earning when you retire.
Industry funds
Industry super funds are also known as not-for-profit or, all-profit-to-members funds and are run solely to benefit members. This means any profit the fund makes goes straight back to members. These funds, particularly the larger ones, are usually open for anyone to join, although there are some, which you can only become a member of if you work in a particular industry. Most industry funds: are accumulation funds; tend to have low or mid-cost fees; and usually offer up to 20 investment options.
Retail funds
Retails funds are open to everyone and are run by financial institutions such as banks or investment companies. The company that owns the fund runs the fund as a profit-making business. If you receive employer contributions to a corporate master trust, you might be a member of a larger retail fund. Investment options in retail funds tend to be quite vast and can sometimes edge into the hundreds, and fees tend to be higher. Although this can vary greatly depending on the investment and other options you choose. The more customised your settings, the higher your fees are likely to be.
Self-managed super funds (SMSFs)
If you choose to have an SMSF, you become the trustee of the fund and take on the responsibility of managing your own superannuation rather than paying fees to one of the professional funds above to perform this duty for you.
Corporate funds
Corporate funds (sometimes called company funds) usually only accept employees from a particular employer or company as members. This means you can’t choose to join just any company fund but may be able to choose to remain in a company fund even after you leave that particular company. In some instances, corporate funds will allow family of existing members to join.
Corporate funds are either sponsored by the employer which operates a Board of trustees, or operated by a larger industry or retail fund. Those employer-run or industry funds return all profits to members, while those run by retail funds will retain some profit from the administration fees they charge fund members. Fees differ depending on the size of the company. Most corporate funds these days tend to be accumulation funds, although a few of the older ones continue to provide defined benefits.
Public sector funds
Public sector funds are usually open only to Commonwealth, state and territory government employees. In some cases ex-public sector employees will be permitted to join. You can’t choose to join just any public sector fund but some will allow you to remain a member even after you leave the public sector. These funds are run solely to benefit members and tend to have quite low fees. Many public sector funds started as defined benefit schemes but are now largely accumulation funds.
Eligible rollover fund
An eligible rollover fund (ERF) can be thought of somewhat like a holding account. It is a superannuation fund or approved deposit fund which is eligible to receive benefits automatically rolled over from other funds. ERFs generally hold the super balances of small inactive accounts or lost member accounts transferred from other superannuation funds. ERFs must protect account balances below $1,000 from being eroded by fees and charges.
Retirement Savings Account (RSA)
RSAs are provided by financial organisations such as banks to act as low-risk, low-return super accounts. As they are really more like holding accounts than investment options, they are uncommon in Australia, with less that one per cent of all superannuation money being invested this way.
Comparing funds
As you’ve probably worked out by now, not all super funds are the same. Not only are there different types available, but each individual fund also has different fee structures, insurance and investment offerings, and different performance records. Some might provide you with greater investment choice while others may offer great low-cost insurance.
A good place to start in choosing a fund is to think about what is most important to you – what is the main thing you want from you super fund. Is it low fees? Plenty of investment options? Inexpensive insurance? Or maybe it’s top customer service? Once you know what it is you’re looking for, comparing the features of each fund is that much easier.
The main things to consider when comparing funds are:
- Performance: remember, your super is invested for long periods of time so you need to look at long-term returns. Compare how much super funds have returned on investments over at least the last five or 10 years - this will give you a much better indication of fund performance than simply picking last year’s top performer.
- Fees: in general, the lower the fees, the less coming off your super balance each month. However, you may find higher fees are worth it if the fund has a record of high performance over time.
- Investment options: there’s no point joining a fund that doesn’t offer an investment portfolio that matches your needs.
- Insurance: research the type of cover offered by each fund and how much it will cost you.
- Service: Does one fund provide handy online services that suit your lifestyle or would you prefer easy access to a customer service centre? Look at what each fund can offer you.
You may also find that being a member of a particular fund offers other advantages such as a discounted rate on your home loan.
There are a number of websites out there that can help you compare superannuation funds but it’s not a good idea to choose your fund based solely on these reviews. Each site has different methods for comparing and rating funds, and often evaluate investment performance differently. One site might value fee price as the most important, while another might place more emphasis on investment strategy. It’s best to use the ratings as guides and information only.
Try:
Ready to switch super funds?
If you want to change your super fund, you’ll need to complete a transfer form which you can get from your super fund or download from the ATO’s website.
As a security measure, you may have to submit proof of identity with your transfer form. Read the Consolidating your super section for information on transferring your super balance from your old account to your new one.
Make sure you tell your employer that you are changing fund before you do so. In some limited circumstances you may not have ‘choice’ in which case you may not be able to switch funds while working in that particular job.
Did you know: Most super funds charge an exit fee when you leave the fund so be sure to check this cost before making the switch so you know what to expect. Contact your fund or check its website for more information.
top