If you’re like any of us, you probably spend a little bit too much time on The Facebook. I know right. We can be better. Together. Anyway, yesterday we saw yet another ad for this ridiculous pariah superannuation fund, Spaceship and it made us mad. So, freekin mad. Superannuation for most Australians will be the second largest investment (behind a home) they’ll ever make, so it’s important to get it right. And part of getting it right, is learning how to stay away from despicable organisations, such as Spaceship. Therefore, today, we’ll quickly look at what superannuation is, the different kinds available and at a very high level how to choose the one for you.
What is Superannuation and what is a super fund?
Superannuation is a government legislated, long term savings plan for Australians. If you have a job, your employer is required BY LAW to make monthly contributions on your behalf to a superannuation fund. At the moment, the minimum contribution is 9.5% of your wage.
A super fund is an organisation which pools together lots of people’s superannuation savings and invests them in a range of different investments. The hope being that by the time you retire, the amount has grown sufficiently that you can live off the balance until you die.
How big is the industry?
Massive and it’s only going to get bigger. The total assets held by Australian superannuation funds is over 2 trillion dollars. Yes, that’s $2,000,000,000,000. By 2050, it could be as high as 7 trillion.
What are the different kinds of superannuation funds out there?
There are three main types. Corporate, Industry and for-profit.
- Corporate superannution funds are run by the company you work for. There used to be 100’s of these, but nowadays there aren’t many left. Corporate super funds found it hard to survive, as they tended to be a lot smaller than industry and for-profit’s and superannuation is a game that works best at scale. Bigger is better. So, many of these superfunds merged with other funds, to get to the size they needed. The three largest surviving stand alone corporate funds out there are Qantas Super, CBA Group Super and Telstra Super.
- Industry superannuation funds were initially created for people who work in a specific industry. For example, if you ever had a job in retail, you probably held an account with REST (Retail Employees Superannution Trust). Employed in Hospitality, chances are HOSTplus has some of your super. UniSuper was originally set-up for those working in tertiary education, Cbus if you worked in property and construction and FirstState Super, VicSuper & CareSuper were all created for those working in government. Of course there are many more…
- For-Profit’s are exactly what they sounds like. These are profit-maximising enterprises, specifically created to make money for themselves. The largest ones like BT, CFS, MLC and OnePath are all owned by the banks. BT by Wespac, CFS is the Commonwealth Bank’s, MLC is NAB’s and OnePath is ANZ’s.
Industry Super vs For-Profit Super
Industry superannuation funds are set-up specifically to benefit their members. There is no year end profit. There are no shareholders. The decisions made are to maximise the investment return for their superannuation members. For Profit’s on the other hand are designed to make money for their shareholders. In most instances, the banks. In some other cases, rich individuals as is our issue with Spaceship. That is genuinely the difference between an industry fund and a for-profit fund.
What does that mean for you? Two things. First, it means that For-Profits have to charge higher fees than industry funds, as they need to feed the mouths of their shareholders. Secondly and most impotantly, for-profits are insentivised is to choose investments which maximise the profits of the fund, not the investment returns for you. In totallity, this means worse outcomes for their members.
Don’t believe us? Read this. Seriously. Or at least scoll down to the bottom of the page of that link to where it says “Top 10 Performing Growth Funds* for 10 years to 30 June 2016”. You will notice a suspicious absence of any of these “for profit” superannuation funds.
Why are we so anti Spaceship?
In a nutshell, their fees are crazy high and they are trying to pray on an ill or uninformed group of individuals who can be easily suckered in by a good story, rather than a sound investment strategy.
We will continue to write about superannuation, because it is such an important topic for you. And we’ll go deeper, but for now, at least, have a look at where your super is and what fees you’re paying… This is one of those times when lower is most definitely better.
But for now, that’s 5 minutes. Hope it helped.