When it comes to superannuation, you’ve probably heard the terms ‘retail fund’ and ‘industry fund’, but what is the difference between the two?
When choosing where to invest your money for your retirement, it can be confusing to know which type of super fund to select.
You’ll have seen the terms ‘retail’ and ‘industry’ thrown around, but why would you choose one over the other?
The major difference between the two when all else is stripped away is how the fund manages its profits. Let us explain.
What is an industry super fund?
Industry funds were originally set up my members of various trade unions to benefit their members in retirement.
Initially, only members of those trade unions could join industry funds, but many have now opened up to the general public. There are even industry funds, such as AustralianSuper, which have never been tied to any particular occupation and are open to everyone.
Industry funds are run as not-for-profit operations, meaning the fund is not beholden to shareholders and all profits are returned to members.
This focus on member outcomes often means industry funds outperform retail funds on member returns, as the Productivity Commission into super found.
What is a retail super fund?
Retail funds are mostly operated by financial institutions such as banks or investment companies.
Retail funds are ‘for profit’ meaning they aim to keep some of the returns they generate to be paid to shareholders.
While you may sacrifice some return with a retail fund, they often offer a much more comprehensive range of investment options and can give you greater control over where your investments lie.
Which should you choose?
When choosing a super fund, retail or industry, you need to consider several factors.
Check the fund’s investment performance? Examine whether it has a history of delivering high returns. But also remember a fund’s past performance is not always a good indicator of its future performance.
What fees does the fund charge? High fees can make a huge difference to your total balance at retirement. It pays to shop around to get the best deals on fees.
What investment options does the fund offer? Look for a fund that matches your values and your appetite for risk.
Finally, what kind of insurances does the fund offer. Many retail and industry super funds offer life insurance, income protection and disability insurance, with premiums paid from your contributions.
Are you with a retail or industry super fund? Are you happy with your decision? Let us know in the comments section below.