Not every super fund is the same and there's plenty that defines them besides their fees, accounts, or long-term performance.
While you might have heard terms like 'industry super fund' or 'self-managed super fund' thrown about, it's not always obvious what these terms mean or what the differences are between them. The terms refer to the different categories of super — and these differences have lots of different implications for contributors like you.
We've put together this comparison guide to help you understand the differences between super fund types. If you aren't quite ready to learn about the types of super funds, you can learn about the basics of superannuation first.
What types of super funds are out there?
If you're looking to compare super fund performance and find the one which suits you best, it helps to understand the different types of funds out there. Super funds can usually be broken up in two different ways:
1) How they calculate the benefit to you when you retire; and
2) Who owns, manages and is eligible to join them.
Accumulation vs defined benefit super funds
Before we get into the different types of super funds, it helps to understand the difference between an accumulation fund and a defined benefit fund. Each of these use different methods to define the value of your super and have different implications for contributors to the fund.
Most super funds are accumulation funds. The value of your super is determined by how much money has accumulated over time based on contributions and interest earned.
These contributions can be a mix of compulsory contributions by your employer, as well as voluntary contributions by you or from your employer if you have a salary sacrifice arrangement in place. The interest earned on these contributions comes from investment returns earned by the super fund.
Defined benefit funds
Defined benefit funds are increasingly rare, and many existing ones are now closed to new members, who are instead directed to accumulation funds. With a defined benefit fund, the retirement benefit is not based on investment return and is instead calculated using a formula. These funds have traditionally tended to be more generous in their benefit calculation than accumulation funds.
If you're part of a defined benefit fund, the benefit formula will take consideration of: contributions to the fund by you and your employer; how many years you worked for that employer; and your average salary in a set number of years before your retirement.
The five main types of super funds
If you're looking to compare super funds in Australia, it helps to know all the different types of funds that are out there. The five main categories of super funds are mostly defined by who owns and runs them, as well as how they distribute profits. Let's go over the main types of super funds:
1. Retail super funds
Retail super funds are usually run by banks or investment companies, so they are owned by shareholders and investors. When they first started, retail funds were targeted at individuals who worked in management positions – but these days, anyone is welcome to join a retail super fund regardless of their position or the industry that they work in.
Retail super funds will often offer a wide range of investment options, but options beyond low-fee or MySuper accounts do tend to attract fees. It is important to compare performance, fees, insurance and other services offered by the fund when making your decision.
2. Industry super funds
Industry super funds are not-for-profit funds which are often targeted at employees in particular industries, such as healthcare services or the hospitality sector. While these used to be exclusive to employees working in these industries, many of them have become open to the public so that anyone can join them.
Industry super funds are different to retail super funds because they are owned by members, not shareholders. This means that profits are returned to members in the form of investment interest, instead of being paid to investors. If you’re looking to compare super fund fees, it’s important to note that industry funds have historically tended to have lower fees as they are run not-for-profit.
Most industry super funds are accumulation funds, but a limited number of them do still have defined benefits for existing members.
3. Public sector/government super funds
Public sector super funds are funds that are restricted to state or federal government employees only – so the general public is usually not able to access these. These have historically had high investment returns for members as profits are returned to the fund; they also have the benefit of very low fees for members.
Historically, public sector super funds have allowed defined benefits for older members, but newer members are usually in accumulation funds these days.
4. Corporate super funds
Similar to public sector super funds, corporate super fund membership is strictly restricted to company employees only and it isn't open to the general public to join. Corporate funds are either run by a board of trustees within the company itself, or operations are outsourced to a retail super fund.
While a few corporate funds do have defined benefits for long-term members, most are accumulation funds.
5. Self-managed super funds (SMSFs)
A self-managed super fund is a private super fund that you own and manage yourself, and there are limits to the number of members allowed. You (and any other members) are the trustee of the fund and responsible for managing the fund, so it's up to you to choose investments and insurance.
While managing your own super may seem appealing, it’s important to note that SMSFs take a lot of work, money and expertise to set up and manage – so they really aren't for everyone.
How to compare super funds
When you're comparing super funds in Australia, it's worth looking beyond performance alone. Past performance is not an indicator of future performance.
You can compare ownership structure, how benefits are calculated, super fund fees, levels of investment risk where your super will be invested, insurance options, and any other services offered by the fund when you are considering where you want to invest your super.