How to understand Industry Super better than everyone else.
Industry super funds is a term used to describe funds that are catered to a specific industry. For example, cbus is an industry super fund that caters for the construction and building industry. However, deregulation and the evolution of the industry has meant most people can join most industry funds.
The main features of an industry super fund
- It has a wide range of investment options which cater to different people's needs.
- The majority of funds are accumulation funds, which means the balance will depend on the contributions you make into it.
- It generally has competitive fees, so if your industry super fund has high fees, it could be the time to switch.
- Some industry super funds offer MySuper accounts, which is the no-frills version of a super fund.
- They are considered not for profit, so the profits are put back in the super fund balances rather than shareholders.
From 1 July 2005, changes to regulation meant that Aussies could choose the super fund they wanted their employees to send contributions to. In Australia, over 75% of employees stick with the default fund their employer chooses. In most cases, it's the industry super fund.
Industry funds were predominantly developed by trade union and industry bodies. Although funds were exclusive to their industry, now it’s opened up to anyone that’s eligible for superannuation.
How do industry funds work?
Under superannuation laws in Australia, your employer must make superannuation contributions in your name (also known as the Superannuation Guarantee). Your employer could be a company or organisation. Your employer contributions are managed by your super fund. At the moment, the compulsory contribution rate is 9.5% of your annual income. This includes casual loading, bonuses and any commission you may receive.
The industry super fund you’re with will manage your account and invest in a mix of investments.
The pros and cons of industry funds
Pros:
- Cheap, no-frills options.
- Reasonable results, especially over the past 12 months.
Cons:
- Little or no advice.
- Limited investment choice.
Overall outcome: Very beneficial for a large number of Australians who don’t have the time to manager their super. When people get closer to the retirement age, the “no advice” motivates people to seek alternatives for their funds.
Some of the most well known industry super funds are AustralianSuper, Rest Super, Sunsuper and Hostplus.
What were the top 10 performing funds for 2015?
The investment performance result for 2015, for the median growth super fund, delivered the fourth straight positive calendar year return according to Chant West.
Most super funds are achieving the long-term investment objectives of beating inflation by 3-4% per annum.
The table below shows the best performing industry super funds for the past 10 years. It is important to note that past performance is not always a good indication of future performance.
How do I compare industry super funds
There are six steps to take when comparing super funds. This is how you choose the best fund for you.
- Compare super funds through a ratings agency. This can lead you to high performers in the space. You can compare your own fund to those that rank highly. This will help you determine if you need to switch.
- Read the Product Disclosure Statement (PDS). While it is very boring to read through a 30 page document, read the PDS will ensure you know what fees and charges are taken from the account. Every super provider must provide a PDS for your reference. If you don't have one, you can get in touch with the provider for a free copy.
- Check the fund's performance. This is where you can compare funds within the same industry and check it's performance. The returns are usually expressed as a percentage which represents the yield your fund is gaining.
- What fees and charges do you have to pay? Not-for-profit funds usually charge the lowest fees since they don't need to pass on their returns to shareholders.
- Check what insurance cover you have under your super. Your super fund usually includes insurance like TPD and Income Protection insurance. However, keep in mind that you can only access the benefits if you've met a condition of release, so it may be a good idea to get external insurance to cover the gap.
- If it’s necessary, consult a financial adviser. If you’ve done all the above steps but still don’t feel comfortable choosing a super fund, consult an adviser. Make sure you get advice from a licensed adviser.
Traps and pitfalls of industry super funds
A common trap with super funds comes when people swap funds. This is a common insurance trap. Check whether your existing insurance cover is obtainable with the new fund for similar premiums.
Don’t put up with poor administration. There are multiple stories about super fund administration gone completely wrong. So don’t put up with poor management. If you don’t like how the fund is managed, you might want to consider changing funds.
Frequently Asked Questions (FAQ)
What is the difference between an industry fund and a retail fund?
Industry funds are run only to benefit members. It has low fees and it doesn’t pay commissions to financial advisers. There is an industry fund for every type of worker and many funds accept workers from any industry.
Retail funds are “for-profit” super funds mostly owned and operated by large financial service providers such as banks, insurance companies and investment houses. Retail funds seek to make a profit from its activity and may pay commissions to financial advisers.
When can I access my super? (Preservation Age)
Members who have attained the Preservation Age and continue to work and don’t establish a non-commutable income stream can only access their super when they:
- Retire permanently from the workforce.
- Have reached the age of 60 and cease employment with one employer.
- Reach the age of 65, regardless of their employment status.
Preservation Age is related to a member’s date of birth, as follows:
| Date of Birth | Preservation Age |
|---|---|
| Before 1/7/1960 | 55 |
| From 1/7/1960 to 30/6/1961 | 56 |
| From 1/7/1961 to 30/6/1962 | 57 |
| From 1/7/1962 to 30/6/1963 | 58 |
| From 1/7/1963 to 30/6/1964 | 59 |
| On or after 1/7/1964 | 60 |
