“We are our choices,” said philosopher Jean-Paul Sartre. Wise words, JP. Smart guy. But what happens when we are overwhelmed with choice? How do we go about figuring out what we want? In the world of superannuation, choice is abundant. And for the customer, that is a wonderful thing. You have the power to choose this fund over that fund, the power to choose your investments, the power to choose who manages your money. It’s your money, your choice.

So, what’s the problem? In Australia, there are currently over 500 superannuation funds and more than 40,000 super products! You could argue that’s too much choice. Imagine you are standing in the supermarket trying to decide on a pasta sauce. They are conveniently grouped by type: pesto, marinara, garlic tomato etc. Once you decide on your preferred type, you can then look at brand and price, and so on. Voila! It’s romanesco night! It’s the same with superannuation; sometimes it helps to categorise your choices by type.

Types of superannuation funds

There are many different types of superannuation vehicles, but we have narrowed them down into what we think are the main groups. Remember: one group is not better than the other, they are just different, and are suited to different people.

MySuper

MySuper is a scheme from the Australian government where employees are offered effective, low-fee super funds as their default option. Fees are often restricted to covering the cost of producing their service only, including administration fees and investment fees. MySuper products accept superannuation guarantee contributions made by, or on behalf of, members who do not have a chosen fund or have not elected in writing to have contributions paid to a specified choice of fund.

Because of this, strict criteria apply to MySuper products and they are specifically regulated by APRA.

SMSF (self-managed super funds)

As the name implies, a self-managed super fund is a type of superannuation fund that you can manage yourself. This is different to a regular super fund, which is managed by a fund manager. All members of the fund (between one and four people) must be trustees, ensuring everyone is involved in the decision-making process of the fund. SMSFs are regulated by the Australian Taxation Office and are typically suited for people with large super balances and investment and finance experience.

Industry funds

Generally, run by unions or employer organisations. These can be by industry, occupation or award-specific funds. Many industry funds are now public and available to anyone, although the boards of these funds typically have strong union representation. Supporters of industry super funds claim that they have lower fees and higher performance figures than retail super funds. Critics point to the millions of dollars funnelled from industry funds to the union movement.

Retail funds

Retail funds are usually run by financial institutions or investment companies. Generally, anyone can join a retail fund and they often have a large number of investment options.

Public sector funds

Public sector funds were created for employees of federal and state government departments. In the past, these were run as defined benefit funds, where payouts were made in the form of pensions determined by a formula instead of based on investment returns. These days, most governments have closed their defined benefit schemes and now have accumulation style funds, where your super grows with the super contributions made and the investment returns generated by the fund. Although some defined benefit schemes still exist.

Employee sponsored funds

Corporate or employer super funds are arranged by employers for their employees. An employer super fund will be that company’s nominated default fund when hiring a new employee. If the employee chooses not to go with their own super fund, they will be registered with the default corporate option.

By understanding the types of superannuation on offer and which may be more relevant to you, hopefully you can become more empowered to delve into the detail of super funds out there (brand, investment type, sustainability score etc) and make an informed choice as to which is the best fit for you.

Victoria Kent, senior investment specialist at Elevate Super

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