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Bank super returns lag behind not-for-profit funds

Bank super returns lag behind not-for-profit funds

If your superannuation is held by a bank-owned fund, the value of your retirement savings may not have grown at the same rate as a not-for-profit fund, according to new data.

Analysis of the monthly SR50 Balanced Index from SuperRatings by Industry Super Australia (ISA) has found that as of 31 January 2018, industry super funds have on average outperformed bank-owned retail funds by 3.29% over one year; 3.49% over three years; and well over 2% over five, seven and ten year periods.

Average annual rate of return to 31 January 2018

1 year3 year5 year7 year10 year
Industry super funds12.7%8.3%10.0%8.8%6.2%
Bank-owned super funds9.4%4.8%7.1%6.2%4.0%
Outperformance:3.29%3.49%2.94%2.66%2.21%

Source: ISA analysis of SuperRatings Fund Crediting Rate Survey, SR50 Balanced (60-76) Index, January 2018

Industry Super Australia public affairs director, Matt Linden, said that the results highlighted the differences between the business models of bank-owned and industry super funds:

“Industry super funds send all profits back to their members, and this is reflected in better retirement savings returns.”

“Bank-owned retail funds serve two masters, splitting returns between shareholders and members.”

“Two per cent doesn’t seem like much, but over a lifetime it may add up to tens of thousands of dollars more – or, sadly, less – at retirement.”

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Fact Checked -

This article was reviewed by Property & Personal Finance Writer Nick Bendel before it was published as part of RateCity's Fact Check process.

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Learn more about superannuation

What is a superannuation fund?

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

  • Retail funds
  • Industry funds
  • Public sector funds
  • Corporate funds
  • Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

How many superannuation funds are there?

There are more than 200 different superannuation funds.

What is the difference between accumulation and defined benefit funds?

A majority of Australians are in accumulation funds. These funds grow according to the amount of money invested and the return on that money.

A minority of Australians are in defined benefit funds – many of which are now closed to new members. These funds give payouts according to specific rules, such as how long the worker has been with their employer and their final salary before they retired.

How long after divorce can you claim superannuation?

You or your partner could be forced to surrender part of your superannuation if you divorce, just like with other assets.

You can file a claim for division of property – including superannuation – as soon as you divorce. However, the claim has to be filed within one year of the divorce.

Your superannuation could be affected even if you’re in a de facto relationship – that is, living together as a couple without being officially married.

In that case, the claim has to be filed within two years of the date of separation.

Either way, the first thing to consider is whether you’re a member of a standard, APRA-regulated superannuation fund or if you’re a member of a self-managed superannuation fund (SMSF), because different rules apply.

Standard superannuation funds

If your relationship breaks down, your superannuation savings might be divided by court order or by agreement.

The rules of the superannuation fund will dictate whether this transfer happens immediately, or in the future when the person who has to make the transfer is allowed to access the rest of their superannuation (i.e. at or near retirement).

Click here for more information.

SMSFs

If your relationship breaks down, you must continue to observe the trust deed of your SMSF.

So if you and your partner are both members of the same SMSF, neither party is allowed to use the fund to inflict ‘punishment’ – such as by excluding the other party from the decision-making process or refusing their request to roll their money into another superannuation fund.

This no-punishment rule applies even if the two parties are involved in legal proceedings.

Click here for more information.

Financial consequences

Superannuation funds often charge a fee for splitting accounts after a relationship breakdown.

Splitting superannuation can also impact the size of your total super balance and how your super is taxed.

Click here for more information.