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, hospitality, building and construction. 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’) is money paid into a specialised fund to go towards your retirement. By regularly investing money in a superannuation fund over the course of your career, you can build up a superannuation balance to enjoy when you retire.
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.
The current superannuation rate, known as the superannuation guarantee, is 9.5 per cent, which the government is set to gradually increase this up to 12 per cent by 2025.
If you’re an employee, your employer must pay compulsory contributions of at least the superannuation guarantee rate. These contributions come from your pre-tax 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 contributions 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 a financial adviser 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.
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 intention of providing maximum benefit to their members. As 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.
Most 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;
- 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
When comparing the benefits and drawbacks of industry super funds, and how they stack up against other types of super fund, like retail or SMSF options, here’s what you need to know:
- Industry super funds may suit Australian workers who don’t have the time or resources to manage their super.
- As industry super funds are non-profit, with profits deposited back into the fund to benefit the members, they tend to have fewer fees than retail funds.
- Some industry super funds offer MySuper accounts, which are no-frills options offering lower fees and simple, easy-to-understand features.
- 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 want to also compare 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. That’s not to say you’ll get no support, though if you’re looking for a super fund that offers more advice and interaction, you may want to also investigate other, more hands-on options.
- My suit time-poor workers
- Often have fewer fees
- Simple, no-frills options available
- May have fewer investment options
- May have hands-off advice and assistance
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:
- Investment options: Historically, industry super funds have offered fewer options than other types of super funds, 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.
- Performance: 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.
- Fees and charges: 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, compare the fees and charges to the features and benefits, and consider whether the cost of fees will make an impact on your super balance, so you can be confident you’re getting what you pay for.
- Insurance: 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 insurance, and income protection insurance are usually discounted. Also, 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 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.