With so many superannuation options around, it’s important to know what you’re getting in to before you choose the fund that’s going to look after your investment.
In this article we take an in-depth look at industry superannuation funds. We discuss their fees, their risks, and how they differ from retail superannuation funds.
Liston Newton Advisory will help you choose the right investment for your future. Contact one of our superannuation advisers today.
What is an industry superannuation fund?
Industry super funds had their beginning as funds exclusive to specific industries, developed largely by industry bodies and trade unions to provide a comfortable retirement for their members.
This changed on 1 July 2005 when Australia’s superannuation rules were modified. This meant that there was no longer a requirement for industry super funds to be industry-specific, which coined the term ‘public offer funds’.
Since then, most industry super funds have removed their restrictions and expanded to be available to anyone, regardless of their industry or union membership.
Unlike retail super funds or self managed super funds, industry superannuation funds are generally not-for-profit. As such, industry funds generally charge lower fees by comparison, as their profits are returned to their members.
Australia’s top industry superannuation funds
Here is a list of Australia’s top ten largest industry super funds, based on the total size of assets under their management.
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These figures are based on APRA's Annual Fund-level Superannuation Statistics report 2018.
Fees you can expect to pay with an industry superannuation fund
Different super funds each have their own fee structures, and these fees have a large impact on the amount that you’ll ultimately have to retire on.
An additional few dollars on a fee here, or the increase in one or two points of a percentage there, can result in hundreds of dollars difference in the amount of fees you pay each year.
Here are some of the most common types of fees you’ll see, and what they mean.
Administration (or management) fee
This fees covers the management and administration for your account. You will generally see it charged as a percentage of your balance, so the more savings are in your account, the higher your management fee.
An investment fee is included to cover the costs of managing your investments, and is usually charged as a percentage of your super balance.
You will typically receive a flat monthly or yearly fee for any personalised advice you receive from a superannuation investment adviser.
If a financial adviser has helped you to arrive at your chosen super fund, as payment for their recommendation they will receive a small fee every time you make a contribution into your account.
Most superannuation funds provide insurance, a fee for which is generally taken directly from your balance. The level of insurance cover you’re under determines the size of this fee.
For any use of external resources in managing your investment, such as engaging an investment manager, your super fund will charge you an indirect fee.
Termination or exit fees
Some superannuation funds charge their members for switching their balance to another provider, or for closing down their account.
The risks of an industry superannuation fund
Some industry super funds invest their assets heavily in large-scale property and property developments. When the properties under their investment get revalued at a higher rate each year, this makes the performance look excellent. However these investments are illiquid, so if there’s a large-scale downturn in the property market the super fund may have difficulty selling at that price. So while the high performance may look good on paper, in practice it can be considered questionable.
Industry super funds work much the same way as retail super funds. When investing, your money is pooled with other investors in that fund. This then all gets invested together, along with other money from other superannuation funds.
This pooling of assets can be dangerous, as sudden changes in the economy provide increased levels of risk.
The 2008 global financial crisis is a good example of this. If large numbers of investors withdraw their money all at once, this causes a panic. The fund manager is required to pay out this cash to the investors asking for their money, so they’re forced to sell some of their investments.
This causes prices to continue to drop as more investors start to sell. If these requests to sell become too numerous, the fund manager can make the decision to freeze the investment fund until the market begins to recover. This recovery can take several years, which means you’ll have to wait this long until the investments unfreeze in order to get your money back.
Not knowing your actual asset allocation
When investing into an industry super fund, you’re typically given the choice of investing into conservative, moderate, balanced, growth, or high growth accounts. These are based on your appetite for risk and return, and can be approached differently depending on your current life stage.
However, each super fund approaches these terms differently. For example, what one fund defines as a growth account, may be considered a high growth account by some, or a conservative account by others. The risk is that unless you do your research into your options, you can’t be certain exactly how your assets are allocated based on the fund terminology alone.
This can result in you taking on more risk than you think you are.
As mentioned above, investing into your super fund means you’ll be paying a number of fees. These fees are generally known as asset-based fees, and are charged at a percentage of your balance. So the greater your balance, the higher your fees.
This can get confusing, and the trustee of your super account is also completely within their rights to modify the fees they charge you, which can make it even more confusing again.
When is an industry superannuation fund the ideal choice?
For many people their employer has a specified superannuation fund that they automatically assign to their employees, which is designed for their industry. This can be a suitable choice for many investors; in fact, some people choose to keep this fund for their entire working life.
Industry superannuation funds suit investors with super balances below $250,000. They’re a safe, hands-off superannuation option, and their set-and-forget ability means you can delegate responsibility to your super fund. You don’t need to do a thing.
But if you prefer a more involved option, a self managed super fund may be more appropriate.
When is a Self Managed Superannuation Fund a more appropriate option?
For investors who prefer a more hands-on approach, a self managed super fund (SMSF) may be a better option for your investment.
For an SMSF, you’re the one choosing where your investments go, so it provides you with better control over your investment strategy. You’re able to do your research and choose investment options that wouldn’t otherwise be available to you in an industry super fund (such as specific property, gold, art, etc).
This provides greater flexibility for managing your superannuation and gives you the ability to better manage the event of a financial crisis.
Unlike an industry superannuation fund, with an SMSF you have the ability to pay a fixed fee, so you know exactly how much you’ll pay in fees each year.
An SMSF gives you more choice over how to handle your investment. If you are a particularly savvy investor, you can choose the investments yourself. Or you can choose to take a more hands-off approach, and seek advice and guidance from a qualified financial adviser