Types of Superannuation Funds
With relatively few exceptions, individuals have a choice regarding which superannuation fund they contribute to and therefore you should seek to have a good understanding of the choices available to you at any time - rather than simple accepting a default super fund.
Accumulation vs. Defined Benefit Funds
In terms of understanding the types of superannuation available, the first distinction to understand is between Accumulation and Defined Benefit (DB) funds. Most Australians now have their funds in an Accumulation fund, with Defined Benefit funds now a diminishing part of the market, and largely restricted to the public service.
The value of your benefit accrues in a different fashion in these funds, as contrasted in the table below, and the main thing to appreciate is that with a DB fund the employer takes on the investment risk and responsibility of maintaining the promised income.
What determines your level of benefits in:
|Accumulation Funds||Defined Benefit Funds|
|Level of employer contributions||Level of employer contributions|
|Amount of any additional employee contributions||Amount of any additional employee contribution|
|Level of investment earnings||How long you have worked for an employer|
|Level of Fund Management Fees||Your salary on retirement|
Types of Superannuation Funds
There are quite a variety of superannuation funds in the Australian market and each has slightly different characteristics::
- MySuper - is a Government superannuation initiative to provide low-cost and simple super products for employers to choose as their default super fund. Since October 1, 2013 employers have been required to make contributions for employees who have not made a choice of fund to a fund that offers a MySuper product.
- Industry Funds are multi-employer funds run by employer associations and/or unions. Unlike Retail/Wholesale funds they are run solely for the benefit of members, as there are no shareholders. Historically they may have been only open to workers in certain industries, they are are now almost entirely open to public participation.
- Retail Master Trusts/Wrap platforms are funds run by financial institutions for individuals - they are often recommended and managed for individuals by financial advisors
- Wholesale Master Trusts are multi-employer funds run by financial institutions for groups of employees - these funds are classified as Retail funds by APRA.
- Employer or Corporate Funds are funds established by employers for their employees. Each fund has its own trust structure which may differ from that of other employers
- Public Sector Funds are funds available to Federal and State Government employees - some still have defined benefit members and may be considered "untaxed" funds, leading to a different tax treatment in the drawdown phase.
- Self Managed Superannuation Funds (SMSFs) and Small APRA (SAF) are funds established for a small number of individuals (limited to 4 and 5 respectively) and regulated by the Australian Taxation Office and APRA, respectively. Generally the trustees of the fund are the fund members (where there is a Corporate Trustee, the members are the directors of that company) or in the case of a SAF, an Approved Trustee.
For the purposes of this website we assume that readers do not have access to Corporate or Public Sector funds and will choose from one of the four types of fund below. Note that this is a very high level comparison and professional advice should be sought where appropriate, and particularly where an SMSF or SAF is being considered - they have significant entry and exit costs.
|Retail Funds||Medium to High||Medium to High||Medium|
|Industry Funds||Medium to High||Low to Medium||Medium|
|SMSF & SAF||Very High||
Low to High
The SMSF sector is currently the largest in the Australian super industry, with 26% of the $2.87 trillion total super assets as at August 2019 (source: APRA) - although Industry funds have grown their market share strongly following the Financial Services Commission ("Hayne") Report, at the expense of retail super funds.
Only SMSF's and SAF's provide the ability to hold real property within the fund - relatively recent changes to legislation have allowed these funds to borrow on a limited recourse basis. Banks developed loans catering purely for this purpose and this enables funds to borrow to purchase residential property, commercial and industrial property, but not for vacant land. Many restrictions apply and we cannot recommend professional advice strongly enough - although the first analysis should always be the suitability of the superannuation fund for your purposes.