Industry funds long standing advertising blitz ‘Compare the Pair’ does not tell the full story of the superannuation industry.
‘Compare the Pair’ is based solely on the comparison of Industry Super Funds with Retail Super Funds. Self Managed Superannuation Funds (SMSF) make up 26% of super fund assets under management as at 30 June 2022 in the superannuation industry. In fact, the Australian Prudential Regulation Authority (APRA) June 2022 Quarterly Superannuation Performance Statistics, indicate that the SMSF sector at that time held more assets in comparison to retail funds. Self Managed Super Fund (SMSF), is a superannuation trust structure that provides benefits to its members upon retirement. Would it not be better then, for the industry funds to make the comparison against SMSF’s?
Transparency investments and transactions
SMSFs are transparent. Members are able to monitor their fund’s bank account on a daily basis; tracking transactions, interest payments, distributions, and dividends as well as contributions being received. Can you do this with an industry fund?
Quarterly figures from APRA March 2023 of regulated APRA funds, indicate that 49% of funds were invested in equities, 22.3% listed Australian shares, and 26.7% international listed shares. In a SMSF, as part of your investment strategy, you can invest directly into the equities markets, making ethical, and educated decisions on the type of equities you invest in. More and more platforms are making the international listed share markets more accessible to the general public.
Balanced growth, Conservative, Indexed Balanced Growth, Sustainable Growth, High Growth, Cash and Term Deposits, Property and Infrastructure, Diversified Bonds, International Shares, and Australian Shares are general investment pools and asset classes. That can be invested in by members in industry funds. But, what is the underlying investment in these pools/classes and what is the risk on return?
We have learnt from the Global Financial Crisis, that what we might think is a secure low risk interest bearing security can be the opposite. Industry funds are well known for investing in government infrastructure projects. Many of which significantly run over budget and over time. It has recently been alleged that union influences may have compromised trustees of funds in carrying out their duties effectively, and that industry super fund monies may have been used to prop up a failing union.
SMSF are transparent, you know what you are investing in.
Transparency in fees
General SMSF annual fees will be accounting fees, audit fees, superannuation levy, and insurance. The main difference between SMSFs and other super funds is that SMSF members are also the trustees of the fund. The trustee of a fund, will engage/negotiate with an accountant to determine a competitive fee to prepare the year end financial accounts and tax returns. Audits fees will differ on complexity of funds. But in an open market, audits fees are competitive and not exorbitant. When purchasing listed security shares as a SMSF trustee, brokerage fees are clearly identifiable, and in such a competitive market the ability to shop around for the best fees is always an option.
Administration fees and costs in Industry funds are, calculated generally by using a combination of a set annual fee, plus a percentage-based fee on the member’s balance. They can also include additional costs that are paid from fund assets or funds reserves, not your account. Investment costs are generally percentage-based, determined by the investment option chosen by the member. These costs are not as evident as they can be deducted from returns before they are added to your account.
As with investment costs, transaction costs are also based on a percentage of the members balance and will vary depending on the investment option selected. Various examples given by industry funds, based on a balanced growth investment option of $50,000 balance at the start of the financial year. The balance would incur administration fees and costs, investment fees and costs, and transaction fees of between $500 and $520 annually. On a $300,000 balance fees could be as high as $3,000.
Generally, a SMSF will not pay the trustee for services however Industry Funds will pay for trustee’s services to the fund, these are generally included in Administration fees and costs. Industry Funds, investment fees are paid to the fund’s internal investment teams and the external management teams. Some funds have performance fees included in investment fees and costs, if a manager returns above an agreed level.
Additional fees will apply for financial advice and insurance for both SMSF and industry funds.
Flexibility in benefit payments
As a member of a SMSF you are also the trustee, the person making the decisions. If you have satisfied a condition of release and wish to withdraw funds as a pension payment, you can do so by advising the trustee of the SMSF, and as trustee acknowledging the members request. A simple action as you are usually dealing with the same person, just wearing a different hat. To release funds from an industry fund, the process is far more cumbersome, limiting and time consuming. Generally, with an industry fund, periodic payments would be set up; but with a SMSF you can set up periodic payments or take a payment when required. This gives flexibility in releasing monies without the administrative burden imposed by industry funds.
Accessing death benefits is also more difficult with an Industry Fund. Complexities can arise in the timely manner of the trustees releasing the death benefits to beneficiaries. SMSF trustees can act in a timely manner.
Industry funds will lead you to believe SMSF are complex, only for experts and only for those with substantial funds. SMSF have rules, which are transparent, offer flexibility and ASIC does not stipulate a minimum starting balance. With a SMSF, what you see is what you get.
The information provided on this website is general in nature. You should consider seeking independent financial advice from a licensed financial adviser if you are considering setting up a SMSF.