If you’ve been comparing and researching superannuation funds, you’ve probably come across industry super funds.
Industry super funds were originally set up in the 1980s to cater to workers in specific industries like retail, building and construction and hospitality. They were established to protect workers from high fees and commission-style products that were once common with retail super funds.
While industry super funds used to be restricted to workers within a specific industry, industry deregulation means that most people can choose to join an industry super fund if they want to. Some of the smaller industry super funds may still only be open to employees within a particular industry.
What is superannuation
Superannuation, or ‘super’ as it’s often simply referred to, is compulsory contributions made by your employer to fund retirement. The current superannuation rate, known as the superannuation guarantee, is 9.5 per cent, with the government are set to gradually increase this up to 12 per cent by 2025.
To deal with an increasingly ageing population and reduce reliance on the government pension, superannuation became compulsory in Australia in 1992.
Prior to this, retirees were relying on a mixture of their savings and the government pension to maintain a quality of life in retirement. By regularly investing money in a superannuation fund during your working life, you’re able to build up a superannuation balance that you can enjoy when you retire.
If you’re an employee, your employer must pay compulsory contributions. These currently stand at 9.5 per cent of your salary, and are deposited into your nominated super fund, whether it’s an industry super fund or another type. Regardless of whether you’re a full-time, part-time or casual employee, if you fit the criteria, your employer must make compulsory superannuation entitlements on your behalf.
In addition to mandatory employer contributions, you also have the option of making voluntary contributions to your super account. There are limits to the amount of pre-tax income you can contribute into your super, so check with an accountant before you make any additional super contributions. While superannuation is currently compulsory for employees in Australia, if you’re self-employed, you can still choose to open an industry super fund, but the responsibility is on you to make voluntary contributions to your account.
The intention behind superannuation is that over your working life, the contributions made into your industry super fund will add up and be invested by your super fund to grow your super balance which you can use when you retire.
What is an industry super fund?
First established in the 1980s, industry super funds were intended to protect Australian workers in certain industries from high fees and commission products most commonly found in retail superannuation funds. Back in the day, industry super funds were usually only open to members who worked in particular industries. These days, the larger industry super funds are open to anyone. However, there are some smaller industry super funds that are still restricted to employees in certain industries.
Unlike retail super funds, industry super funds don’t pay commissions or incentives to financial planners or financial advisers. Industry funds are not-for-profit organisations and are run with the sole intention of providing maximum benefit to their members. As all profits go back into the fund, industry super funds tend to have lower management fees than other types of retail (or for-profit) super funds. When it comes to governance, industry super funds are usually governed by trustee boards made up of both employers and employees.
The majority of industry super funds tend to be accumulation funds. Accumulation-style super works similarly to a regular bank account where the balance of your industry super account depends on how much is deposited into it. Funds are accumulated into industry super funds by way of compulsory employer contributions, any additional contributions you make, and spouse contributions or government co-contributions. Your super contributions are then invested by your industry super fund into an investment option that either you or your industry super fund chooses, as a default investment.
Pros and cons of industry super funds
Industry super funds are best suited to Australian workers who don’t have the time or resources to manage their super. As industry super funds are non-profit, they tend to have fewer fees than retail funds as all funds are deposited back into the fund to benefit the members. Some industry super funds offer MySuper accounts, which are a super fund’s no-frills account, offering lower fees and simple, easy-to-understand features.
When it comes to cons, industry super funds may have fewer types of investment options. While this may not be an issue for some people, those wanting more flexibility and diversification might be better with either a retail super fund or a SMSF. When it comes to advice and ongoing assistance, industry super funds tend to be less hands-on than retail funds. If you’re looking for a super fund that offers more advice and interaction, you may be better investigating other more hands-on options. That’s not to say you’ll get no support – it’s just worth mentioning.
How to compare industry super funds?
With so many different super funds on the market, comparing industry super funds and working out which fund suits your needs can be confusing. When comparing industry super funds, here’s what you need to know.
Start by looking at what investment options the industry super fund offers. Historically, industry super funds have offered fewer options, but this has changed in recent years. Some people prefer to pick their investments, so if you want an industry super fund that gives you this flexibility, search for a fund that suits your preference.
The other factor to consider is the performance of the industry of the super fund. While historical performance is never a direct gauge of future performance, it can help give you a rough idea of the type of returns you might be able to expect from your industry super fund. Spend some time comparing the past five years of investment performance of different funds to get an idea of where you could potentially stand.
Ongoing costs and maintenance fees can add up over the long term. As industry super funds invest profits back into the fund, this generally means that industry super funds have fewer fees than other retail or for-profit funds. With any superannuation fund, always consider whether the fees charged will have a positive impact on your super balance and whether you’re getting what you pay for. Make sure you check what the fees and charges are actually for.
These days, it’s common for super funds to offer insurance as an option within the fund. When you’re comparing industry super funds, check what insurances are on offer and whether the level of cover stacks up to policies held outside an industry super fund. An advantage of holding insurance within an industry super fund is that policies like life insurance, total and permanent disability and income protection insurance are usually discounted. The other aspect to consider is that premiums on insurances offered through an industry super fund are usually deducted from your super account, which can be tax effective in some cases.
Superannuation is a long-term investment designed to support you well into your retirement. Some people can compare super funds and still feel overwhelmed or uncomfortable deciding which fund works best for them. In that instance, a financial adviser or or financial planner may be able to help you narrow down your options. Before making any decisions, it always pays to do your research and compare your options.