What is the difference between Industry and Retail super funds that those ads always refer to? If industry funds always “perform better” why would anyone go with the other one?
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In recent years, Retail super funds have been on the receiving end of some heavy criticism about the fact that they pay commissions to financial advisers, unlike Industry super funds.
Traditionally this has meant that retail super funds have been more expensive, but is not so much the case in today’s market. There are vast differences between the retail funds in the market, however some are priced competitively to that of industry funds.
Generally Industry super funds offer a smaller variety of investment options than many of the retail funds. Retail funds may have over one hundred investment options to select from. This variety of choice means that a financial planner may be able to tailor an investment recommendation that specifically caters for their client.
A superannuation fund is only one element to consider.
The advice element is critical to consider. If using a quality financial planner, they are working together with you for the long term and meet regularly with you on your journey. They will make recommendations that may save you tax, increase contributions to you super and inevitably enhance the fund’s value at your retirement.
The cost of not receiving advice may be higher than the cost of the fees the planner charges. There are strategies that exist, such as the government co-contribution or the transition-to-retirement options that people in Industry super funds, or sitting idly in retail funds, are missing out on because they don’t have someone annually re-evaluating their circumstances.
Fees for advice are generally charged in addition to product costs. Generally, planner fees can be charged to retail super funds whereas Industry funds may not permit this resulting in fees having to be charged directly to you. However a number of planners do continue to recommend Industry funds if that is the most appropriate solution.
In terms of “performing better,” it should be noted that past performance is not indicative of future performance. Just because a fund has had a good year or more, doesn’t provide a crystal ball for the future. Investment markets fluctuate for many reasons and an investment manager may or may not make the right decisions year to year.
Where do self-managed super funds fit in?
Self -managed super funds (SMSF) are a different model to Industry and Retail super funds. The fund is established by the execution of the trust deed and it’s purpose is to provide retirement benefits for it’s members. Retirement benefits can be paid out as a lump sum or pension allowing freedom and choice of investment in property or direct shares.
Advantages of SMSF:
- Provide greater control/flexibility
- Strategic planning opportunities
- Greater investment choice
- Direct property
- Asset protection
- Family fund (pool resources)
- Cost advantages
Disadvantages of SMSF:
- Time burden as accurate records must be retained
- Costly for small balances
- Penalties for non compliance e.g. you must understand trustee responsibilities and investment restrictions.
This is where a SMSF Specialist can assist with servicing the above.
SMSF are ideal for higher fund clients e.g. $300,000 or more due to the financial planning and audit fees.
I’m a 33 year old tradie and have just started my own business and am wondering about Super. What would be best for me?
Self-employed people often earn a decent income while working, but without the benefit of employer-paid superannuation contributions, find they have very little money to live on in retirement.
Many self employed people neglect super contributions only to find after 10 or 20 years they have nothing and find it difficult to catch up prior to retirement.
Superannuation is a tax-effective investment for retirement savings. Contributing to your super can also reduce the tax on your current income.
Depending on your business structure as a guide, you or your business may be able to claim a tax deduction of up to $30,000 annually for contributions to your superannuation fund (or $35,000 annually if you are aged 50 or over). It's an easy way to trim your tax today while building a nest egg for the future.
Another benefit of super is you can pay for various insurance covers through it such as Life, Total & Permanent Disability and Income Protection.
As a new business owner battling the challenges of a consistent income during times when cash flow is tight, the premiums can be funded from your existing super balance – this way you don’t lose the valuable protection these provide.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.