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Should I choose a retail fund or a profit-for-members fund?
One of the big choices Australians have to make with their superannuation is which fund to invest in. For most people, their super will be one of their two largest assets, along with their house, so it is an important decision.
One of the first questions when choosing a fund is whether to invest it with a retail fund or a profit-for-members fund.
Retail funds are run by shareholder-owned institutions (such as banks), with profits being distributed to shareholders. Profit-for-member funds are member-owned institutions, with profits being "put back into the fund for the benefit of all members", according to ASIC.
Profit-for-member funds generally have lower fees than retail funds, because they’re not focused on maximising profits.
Profit-for-member funds also tend to deliver better net returns than retail funds, partly because of their lower fees, but also because profit-for-member funds have tended to invest more in private assets such as infrastructure and direct property. Indeed, the SuperRatings SR50 Balanced Index (60-76) at the end of February^, which ranked funds for their performance over the previous decade, found that profit-for-member funds occupied 16 of the top 20 places. These private assets also tend to reduce risk via diversification, reducing the size of the ups and downs in returns that members experience.
So with higher returns and less risk, it’s probably not surprising, then, that Australians report higher levels of satisfaction with profit-for-member funds than retail funds.
Roy Morgan’s most recent ‘Satisfaction with Financial Performance of Superannuation in Australia January 2019’ report found that industry funds (a type of profit-for-member fund) had an average member satisfaction rating of 62.1 per cent, compared to 57.3 per cent for retail.
This report also found the fund with the highest member satisfaction with financial performance was QSuper, which outscored both the industry and retail fund averages.
- Public sector funds – funds created by government departments for their employees
- Corporate funds – funds set up by companies for their employees
- SMSFs – self-managed superannuation funds
Some funds deliver higher returns than others
Each fund has different investment strategies and delivers different returns.
Here are the five profit-for-member super funds that delivered the highest returns in the SuperRatings SR50 Balanced Index (60-76):
Fund & option | Return over 10 years (per annum) |
QSuper – Balanced | 9.7% |
UniSuper Accumulation 1 – Balanced | 9.6% |
CareSuper – Balanced | 9.5% |
Equip MyFuture – Balanced Growth | 9.4% |
VicSuper FutureSaver – Growth (MySuper) | 9.4% |
Profits for you, not for them
It's clear that QSuper’s lower-risk approach has also delivered strong returns, which makes it even easier to understand why QSuper’s members placed QSuper first in terms of satisfaction with financial performance.
You may wonder if there are any other reasons to prefer a profit-for-member or retail fund.
QSuper chief executive Michael Pennisi says people should differentiate, because all the returns of a profit-for-member fund are for the benefit of members, not owners who are looking for a return on their investment.
“This keeps fees lower and, in the case of QSuper, means we have been able to reduce administration fees for each of the past three years,” he says.
Five factors to consider when comparing super funds
QSuper Head of Investment Strategy Damian Lillicrap says that when Australians research and compare super funds, the most important thing for them to consider is their retirement outcome.
Will they be able to retire with confidence, knowing they can enjoy the retirement they want?
“An important component of that is the net long-term investment performance – that is, the return you receive on your savings after fees and tax,” he says.
“Another important component is the protection you have throughout your working life via insurance.”
Mr Lillicrap identifies five specific criteria people should evaluate:
- Fees
- Performance
- Insurance
- Investment options
- Service
Choosing the wrong super fund can be an expensive mistake
You know how choosing a more expensive mortgage over a less expensive mortgage can compound into big dollars over the course of 30 years?
The same logic applies to superannuation, given that it also tends to be a multi-decade investment, according to Mr Lillicrap.
“Last year’s Productivity Commission, for example, found that an increase in fees of just 0.5 per cent can cost a typical full-time worker about 12 per cent of their balance – or $100,000 – by the time they reach retirement,” he says.
“So you can imagine what difference 1 or 2 per cent net return could make over your working life.”
^ QSuper Balanced Option only. SuperRatings SR50 Balanced Index (60-76) median based on cumulative returns compounded annually after fees and for initial $50,000 invested over the period to 28 February 2019. Based on funds open to the public. Past performance may not be a reliable indicator of future performance. This is the return for the option as it does not take into consideration the timing of contributions, switching or withdrawals. SuperRatings does not issue, sell, guarantee, or underwrite this product. Go to superratings.com.au for details of its ratings criteria.
The views of the author are not necessarily the views of the QSuper Board. This information is general information only, and you should get professional advice before relying on this information. Past performance is not a reliable indicator of future performance. Each of QSuper’s investment options has a different objective, risk profile, and asset allocation. Visit qsuper.qld.gov.au for more information.