About super funds
Last Updated : 05 Jan 2009
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The primary function of a superannuation fund is to hold and invest members' monies on their behalf. Australians have hundreds of billions of dollars invested in superannuation, so super funds have an important role to play.
Aside from holding and investing members' assets, many superannuation funds provide additional services such as insurance cover for death, disablement or income protection. Many funds also offer investment choice (this allows individual members to have a level of control over where their own money is invested) and post-retirement products (such as allocated pensions) so that when you retire you can stay with your super fund and draw a regular pension from your account.
As an introduction to the different types of superannuation funds in Australia, we have prepared the following table. This table classifies the different types of funds by:
- benefit structure - that is, the way they calculate your retirement benefit
- the way in which they distribute profits - do their profits go to their shareholders or are they returned to the members of the fund?
- the different fund types regularly referred to in the media.
| Benefit Structure | Distribution of Profits | Fund Type |
|---|---|---|
|
Accumulation funds
Each member has their own account where contributions and investment earnings are added and taxes, fees and insurance premiums are deducted. The amount available to you in retirement is simply the balance in your account. In an accumulation fund, the member bears the investment risk. That is, if the investment return in a particular period is negative, then your account will decrease.
Most new funds in Australia today are accumulation funds. |
To Shareholders Profits go to the people who own shares in the company that provides the superannuation product. |
Retail Funds Superannuation funds established and offered by banks or life insurance companies to the public. |
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To Members All profits go to the members of the superannuation fund and no-one else. |
Industry Funds Usually, an industry fund will cover a specific industry or range of industries, and such funds will accept contributions from any employers in those industries. Most industry funds have trusteess appointed by trade unions and employer associations. |
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Corporate Funds These are super funds established by a particular company (or group of companies) for their employees. |
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Public Sector Funds These are superannuation funds that provide benefits for Government employees. The governing rules of a public sector fund are usually established by an Act of Parliament. |
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| Defined benefit funds These are super funds where the formula for calculating the retirement benefit (and possibly other benefits also) is specified in terms of years of service with the employer (or years of membership of the fund) and average salary level over the final years prior to retirement. (eg. the formula may be will receive a lump sum 15 per cent of final average annual salary for each year of membership.) In a defined benefit fund, the member does not carry the investment risk as the member's benefits do not depend on investment performance. Instead, the contributing employer carries the risk, (eg if investment returns are low, the employer may need to increase their contributions to enable the fund to meet its required payments).
The number of Australian defined benefit funds has been falling over the last ten years and this trend is likely to continue. |
To Members |
Usually corporate or public sector, although some industry and retail funds may allow defined benefits for some employers. |
Another important and growing group of superannuation funds is Self Managed Super Funds (or SMSFs). As the name suggests, self managed super funds are used by people who want to manage their own superannuation arrangements.
The decision to start up your own SMSF should not be taken lightly as there are many compliance and administrative obligations that must be managed. Most superannuation commentators recommend that you have at least $100,000 in superannuation before considering this option, as otherwise the fees for running your own self managed fund are likely to be higher than using an existing superannuation fund within the marketplace.The Tax Office is responsible for the regulation of SMSF's.
Some funds can accept anyone as a member. These funds are known as 'public offer' funds. Other funds may be restricted to only accepting members who work for an employer who is eligible to contribute to that particular fund.Over the years, some funds have 'closed' and no longer accept new members. However, they may continue to operate as they still hold and invest funds on behalf of their remaining members.
Choosing your fund