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According to the Association of Superannuation Funds of Australia (ASFA) there are more than 400,000 super funds in Australia. With so much choice out there it’s enough to make your head spin.

Not all super funds are open to everyone, nor do all of us have the choice of which fund to join. But for those of us that do, the big question is with so many funds to choose from, in what type of fund do we trust our retirement savings?

The low-down on super funds

Generally speaking there are five main kinds of super funds – retail funds, corporate funds, industry funds, public sector funds and Self Managed Superannuation Funds (SMSFs). They all have the same objective – look after people’s retirement savings. It’s how they do it and what they charge to do it that differentiates them.

Retail super funds are usually run by large financial institutions (banks, financial planning outfits and insurance companies) on a for-profit basis. They generally charge investors higher fees than most other funds and may pay commissions to financial planners.

Corporate funds or employer-sponsored super funds are only available to employees of a particular company.

Similar to corporate funds are public sector funds. As the name suggests these funds are set up specifically for public sector employees. The rules governing these funds are usually established by an Act of Parliament.

Self Managed Super Funds are DIY funds. In recent years they have grown in popularity as more and more people decide to take responsibility for managing their retirement savings into their own hands. However managing your own SMSF is no walk in the park. It is usually only recommended for people who have at least $200,000 in super and who have the time and expertise (or the funds to pay for the expertise) to run their own fund. Unlike other super funds who are regulated by the Australian Prudential Regulation Authority (APRA), SMSFs are regulated by the ATO and involve strict and complex compliance and tax obligations that can be time consuming and costly to manage.

Traditionally industry funds or not-for-profit funds were established to cater to the needs of people working in a specific industry or a group of similar industries. Industry funds operate in direct competition to retail funds and have a very different philosophy when it comes to managing member’s money. They are run only to profit members, charge low fees and do not pay commissions to financial advisers.
 
The great rivalry – retail versus industry funds

When it comes to superannuation there has always been a great rivalry between retail funds and industry funds.

Retail funds have long considered themselves to be the best in the business. For many years they have argued in favour of higher fees in return for higher returns. And for many years that was ok because they performed better that industry funds and people didn’t mind paying for better returns.

But wind the clock forward to today and their position as the best has been challenged by the industry funds sector. In fact performance data from APRA released in March has shown that despite performing well last financial year, in the five years to 30 June 2009, retail funds have been outperformed by their industry fund counterparts. It would seem after many years retail funds are starting to lose some of their shine and many Australians are asking why they’re paying more in return for less?

If your super is currently isn’t invested in an industry fund, what are you waiting for? 

They’re run only to benefit members - Industry funds are run only to benefit members. This means all profits are returned to members rather than to shareholders.

They don’t pay out your earnings in commissions – Unlike their retail rivals, industry funds do not pay commissions to financial planners. While this makes them unpopular within financial planning circles – planners almost never recommend industry funds to clients - it may also provide more money for members.   

Lower fees won’t eat into your super savings – Industry funds generally charge lower fees than the average retail fund. And given that industry funds have closed the performance gap, why would you want to pay higher fees for a lower return?