Retail super funds in Australia
For Australians considering the future of their superannuation, retail super funds provide an option worth exploring. These funds, operated by financial entities, offer an extensive range of investment opportunities, coupled with a suite of financial products. Grasping the intricacies of retail super funds is crucial for informed retirement planning.
What is a retail super fund?
A retail super fund is a for-profit superannuation fund typically managed by a bank or a large investment company. Unlike not-for-profit industry funds, retail super funds are commercial entities that have an obligation to return profits to their shareholders.
But there are no happy shareholders without happy members. So the retail model aims to balance member satisfaction with shareholder returns, leveraging institutional expertise in fund management.
In retail funds, members might pay higher fees, but what they're really paying for is the expertise of big financial institutions managing their super funds. These institutions work to get strong returns for members, offering a wide range of investment choices and services, ranging from conservative to high-growth portfolios, along with other financial products like life insurance.
Examples of retail super funds include:
- ANZ Smart Choice Super
- AMP Signature Super
- Colonial First State Super (Commonwealth Bank)
- MLC Super (NAB)
Retail super funds versus industry super funds
Retail super funds and industry super funds in Australia have distinct features and appeal to different investor needs.
Retail super funds are for-profit entities, often managed by banks or investment companies. They are open to anyone and typically offer a broader range of investment options, including international funds. These funds may have higher fees but provide additional services like financial advice, appealing to those seeking specific investment strategies or more personalised financial services.
Industry super funds, traditionally not-for-profit, were historically linked to specific industries or unions, but most are now open to everyone. They are designed to reinvest any profits back into the fund, enhancing services and reducing fees for their members. This model typically leads to lower fees compared to retail funds. The not-for-profit status means profits are used for member benefits rather than being distributed to shareholders, as is the case with retail funds.
The choice between a retail and an industry super fund depends on an individual's investment preferences, desired services, and their relationship to specific industries or unions.
Are retail funds worth it?
Retail super funds generally charge higher fees, but in recent years, they have been lowering them to stay competitive. A key part of this competition is MySuper products, government-mandated investment products available in both retail and industry funds. They are simple, low-cost super options designed to be a default, low-cost option for employees who don’t choose a super fund when starting a new job.
These offer a valuable benchmark for assessing the superannuation landscape.
According to the Rainmaker Information's Superannuation Benchmarking Report, as of June 2023, average fees for MySuper products have been reduced to approximately 1.00% per annum. This significant decrease brings retail funds closer to the fee levels of industry funds.
However, both retail and industry funds offer a range of investment options beyond MySuper products, catering to different investment strategies and preferences. If you opt for a more premium offering and personalised services through a retail fund, you'll generally be paying more in fees, particularly administration fees.
At the end of the day, when considering a super fund, it's important to look at all aspects, including fees, the range of services and investment options, and align them with your financial goals. With their evolving fee structures and diverse offerings, retail super funds can be a viable choice for many investors, just as industry funds with their lower fees and not-for-profit model.
Pros and cons of retail super funds
When considering retail super funds, it's important to weigh their advantages and disadvantages to make an informed decision about your superannuation investment. Here are the pros and cons of retail super funds:
Pros of retail super funds:
- Diverse investment options. Retail super funds often offer a wide range of investment choices, including international funds, which can cater to different investment strategies and risk appetites.
- Additional services. These funds frequently provide access to financial advice and other services such as insurance, which might not be as readily available in some industry funds.
- Flexibility and accessibility. Retail funds can be more flexible in terms of investment options and are generally accessible to all individuals, regardless of their employment sector.
Cons of retail super funds:
- Higher fees. Despite recent reductions, retail super funds generally have higher fees compared to industry funds. This includes management fees and, in some cases, fees for additional services.
- Profit motive. As for-profit entities, retail super funds have to balance member benefits with the need to generate a profit for their shareholders, which can sometimes lead to conflicts of interest.
- Variable Performance. While some retail super funds offer strong returns, their performance can vary, and it's important to research individual fund histories.
It's essential to consider these factors in light of your own retirement goals and financial situation. Each type of super fund has its unique features, and the best choice for you will depend on your individual needs and investment preferences. Always consider seeking financial advice tailored to your circumstances before making any decisions.
How to compare retail funds?
When comparing retail super funds, it's important to consider a range of factors to ensure you find the fund that best suits your financial goals and circumstances. Here are key aspects to look at:
- Fees. Compare the fees charged by different retail funds, including administration fees, investment fees and any other associated costs. Lower fees can significantly impact the long-term growth of your superannuation.
- Investment options. Look at the variety of investment options offered by each fund. Consider whether they align with your risk tolerance and investment strategy.
- Performance. Review the historical performance of the funds. While past performance is not a guarantee of future results, it may give an indication of how well the fund is managed.
- Insurance offerings. Check what types of insurance (like life, total and permanent disability and income protection) are offered and at what cost.
- Additional services. Consider the additional services offered, such as financial advice, online account management and educational resources.
- Reputation and customer service. Research the fund’s reputation and the quality of customer service they provide. Reviews and testimonials can offer insights into customer satisfaction.
How do I join a retail super fund?
Joining a retail super fund is a straightforward process, typically involving the following steps:
- Research and choose a fund. Based on your comparison, select a retail super fund that meets your needs.
- Application process. Visit the fund's website or contact them to start the application process. This usually involves filling out an online form or a paper application.
- Provide identification. You will need to provide identification details to meet the Australian Government's legal requirements. This can include your date of birth, contact info, full residential address and tax file number (TFN)
- Nominate beneficiaries. Decide who will receive your super if you pass away. This can usually be done during the application process.
- Roll over existing super. If you have super in another fund, you can choose to consolidate it into your new retail super fund. The fund can often assist with this process.
- Employer details. If you’re employed, inform your employer of your new super fund details for the superannuation guarantee contributions.
Remember, it's advisable to seek independent financial advice tailored to your specific circumstances before making any decisions about joining a retail super fund.
In summary, retail super funds in Australia are just one of the options for managing your superannuation, alongside industry super funds and self-managed super funds (SMSFs). Each option has its unique features and benefits, and the choice depends on individual financial goals and preferences. It's important to explore all these options to make an informed decision about your superannuation strategy.
To learn more about the various aspects of super, check our superannuation guides hub for insights into a wide range of superannuation topics.