There is no doubt that superannuation is a complex topic – and yet something every working Australian needs to understand, in order to have the most comfortable retirement possible.
Choosing where to invest your hard-earned nest-egg, and then choosing how you’ll access those funds in retirement will be amongst the most important financial decisions you’ll ever make.
In this four-part series, we investigate the ins and outs of superannuation, busting myths around how to secure an ongoing income from super, whether it’s best to take a lump sum payment or create a regular income, and whether it’s too late to boost super savings at retirement.
In this first article, we look at the key differences between industry and retail superannuation funds, and how these differences impact on how much your nest egg grows.
What are retail superannuation funds?
Retail super funds are mainly owned by banks and insurers and are run to generate a profit to their shareholders. They use the funds they manage to make corporate profits that they return to shareholders as dividends, as well as to their super customers as returns.
These funds typically pay financial advisers (either their own staff or other qualified professionals) commissions or incentives to sell their products.
What are industry super funds?
Industry super funds were established in the 1980s as an alternative to retail super funds, and now include 16 funds across a wide range of industries.
Unlike retail super funds, industry super funds don’t pay commissions to their staff or other financial advisers and don’t pay dividends to shareholders, therefore allowing profits to be returned to their members.
This focus on returning value to members would seem to be paying off for the industry funds, making them an attractive option for investors.
Industry super funds outperform retail funds
According to independent research firm SuperRatings, industry funds outperformed retail funds with the median gap between industry and bank-owned funds being well above two per cent per year over past seven years.
Over the long term, these differences in performance can have substantial implications for how long you stay at work and your lifestyle in retirement.
Industry SuperFunds estimates that over the last 10 years, the average retail fund has delivered around $15,000 less to each member than the average industry super fund.
Matt Linden, a spokesperson for Industry Super Australia, said the solid performance could be attributed to the unique characteristics of industry funds.
“Industry super funds have long-term, nation-building investment strategies, deliver all profits back to their members and are governed equally by employer and worker representatives,” Linden said.
“It’s important that all Australians watch how their super funds are performing, as persistent shortfalls could result in having to work longer or retire with less,” he said.
“These new figures show that at least the retirement savings of industry super fund members are in good hands.”
Have you reviewed your superannuation fund’s performance recently?