If the shoe fits...
Work boots are, without question, my favourite footwear. They’re comfortable and it doesn’t matter if they get dirty - a good thing when you live in the country. If I’m wearing my boots, it usually means I’m kicking back at home or working on a building/gardening project. Bliss.
But as much as I love my boots, they’re not the ideal footwear for going running, and they definitely don’t cut the mustard when it comes to dressing up or presenting a workshop in a corporate setting. Shoes are not ‘one style and size fits all’. It’s important to choose the right shoes for the right purpose and that will change depending on the occasion, size, fit and comfort.
Just like shoes, superannuation isn’t a ‘one size fits all’ thing. There are many different types of super fund, and often lots of choices to make within the one fund. It can be quite overwhelming, but because super is YOUR money, it’s important to find out as much information as possible so that (just like choosing shoes) you make the right choice for your situation.
According to the Australian Superannuation Funds Association (ASFA), as of May 2019 most superannuation accounts were held in industry funds - around 11.6 million of the total 28 million super account held by Australians..
When I think of industry funds, I’m reminded of walking shoes: they may not be the prettiest, but they’re practical for everyday use and are often lower cost than other footwear.
As the MoneySmart website points out, industry super funds are usually low-to-mid cost and they’re run on a 'not for profit' basis which means profits are put back into the fund for the benefit of all members.
Most industry funds are open for anyone to join, but some are restricted to employees in specific industries. They usually have a smaller number of investment options than other types of funds, but commonly offer MySuper accounts. Industry funds may allow members to take out insurance but these may be ‘group’ policies or have restrictions (such as exclusions for pre-existing conditions) which means members may have less choice about the nature and amount of insurance cover they can take out.
Industry super funds often provide benefits such as free education sessions for members and access to in-house financial advisers who can help provide the information you need to make decision about your choices.
Retail super funds tend to be a little bit fancier, a bit like work high heels.
According to ASFA, Australians have around 11.4 million accounts in retail funds.
As you can read on the MoneySmart website, retail funds tend to be mid-to-high cost, although some offer a lower-cost My Super option.
Retail super funds often have a large number of investment options as well as customised insurance cover.
The extra frills come at a higher cost because the companies who offer retail super funds operate on a for-profit basis, and if you use a financial adviser to open a retail fund there’ll be an additional cost for their advice.
Self-managed superannuation funds (SMSFs) can be described as the Jimmy Choos or Christian Louboutin of the super world.
SMSFs aren’t for everyone, and each fund can only have a maximum of four members, but they can offer greater control and investment flexibility (subject to the super and tax laws).
The bells and whistles SMSFs offer come at a cost - not just the financial expenses, such as engaging an accountant and auditor for the fund - but also the additional burden placed on the fund members who are also the trustees.
SMSFs tend to be popular with small business owners and people who have a lot of investment experience and/or who have a lot of money to invest, as well as have the time to put into managing the fund.
SMSF member/trustees are completely responsible for complying with all of the laws, regulations and rules for opening and maintaining their SMSF. That means even if they seek advice from or outsource the work to professionals - such as seeing a financial adviser for investment advice - the buck still stops with the trustee .
The super rules can be complex, and the penalties for breaching them quite severe, so it’s important for anyone with their own SMSF or thinking of starting one to ensure they have the knowledge and skills they need to be a trustee.
There is free education provided by CPA Australia and Chartered Accountants Australia and New Zealand for SMSF trustees/members to help them understand their responsibilities. You can also find information about SMSFs from the Australian Taxation Office and from the Self Managed Super Fund Association.
Regardless of the type of super fund you have, it’s important learn as much as you can about how super works and what your choices are. As well as the links included here, you’ll usually be able to more information on your super fund website and some of the great books available such as Pauline Taylor’s ‘How to be a Super Smart Woman’.
On a final note, did you know that the most expensive pair of shoes in the world are up for sale for a record $23.6 MILLION and will be diamond encrusted and custom-made for the wearer?
Think I’ll stick to my Redbacks.
Disclaimer: the information we provide at #Sprout_Ed is factual in nature and is not general or personal advice. If you want to know whether super (or a particular fund) is right for you, please speak with an appropriately qualified professional who holds an Australian Financial Services Licence. You can find the Financial Adviser Register at the MoneySmart website as well as information about how to choose an adviser..