Posted on 31/01/2019
For the average Australian worker or employer, navigating the nation’s $2.7 trillion retirement savings system is a complex task.
From selecting the right super fund or investment option, through to keeping track of retirement savings, making the right choices when it comes to superannuation can seem complex.
But the continuing rise of industry superannuation funds is bringing clarity to these decisions for many Australians.
According to the 2018 Rice Warner projections published in the Australian Financial Review, industry super funds are on track to become the dominant players in Australia’s superannuation industry within the next two years – overtaking self-managed superannuation funds (SMSFs) and retail superannuation funds.
An indication of their growing esteem is the fact that industry super funds have been rated by Canstar as Australia’s top performing super funds for seven years running.
So what’s behind their rise to the top? In truth, there is no single contributing factor, but rather it’s a combination of features that are driving their popularity. These range from being member-owned (with profits going back into better products and services) through to consistently delivering superior investment returns.
The emergence of industry super funds
Emerging in the 1980s as a way for Australian workers to avoid high fee and commission products, industry super funds, by design, have always had the interests of people at their heart.
Their defining feature is that they are not-for-profit, meaning any profits are put back into the fund for the benefit of its members.
Originally established with close links to specific industry sectors, many employers in the past may have been excluded from accessing industry funds, or reluctant to consider them for their business.
But today, industry funds are generally open to anyone and more individuals and employers are discovering the value of the people first, non-profit philosophy.
They’re now sophisticated, competitive providers of retirement income products and hold $23 of every $100 in Australia’s retirement savings.
The decline of retail and SMSFs
The once dominant retail funds, holding more than 40 per cent of market share just 15 years ago, have recently been experiencing a period of significant decline.
Today, they hold less than 30 per cent market share, and by 2024, Rice Warner predicts they will hold just 23 per cent of the market.
In contrast to member-owned industry super funds, retail super funds are usually run by big banks or insurance companies, for a profit that is returned as dividends to shareholders, not superannuation policy holders.
Their decline can be attributed in part to numerous instances of these funds making decisions that have been deemed not to be in the best interests of their customers, with some of these stories emerging in the recent Financial Services Royal Commission.
In the six months to September last year, more than $5 billion has flowed out of super funds owned by AMP and the big four banks into various industry funds.
Self-managed super funds aren’t much better off.
As the name suggests, self-managed super funds (SMSFs) are private superannuation funds managed by individuals, and regulated by the Australian Taxation office.
The SMSF establishment rate hit a 10-year low in 2017, according to a survey for investment management company Vanguard.
Their complex nature makes running them a major commitment, so it’s no wonder some in the DIY super sector have moved their money to an industry fund after finding it difficult to get good returns in the face of the added cost and complexity associated with self-managed super.
Its been a rapid rise for industry super funds, and if the projections and returns on investment are anything to go by, they’re going to be a strong player in the sector for a long time to come.
Now is the time to ask yourself, is your company’s default superannuation partner doing the right thing by you, your employees and the community?
Choose Statewide Super, your local industry super fund committed to putting members’ interests first. Contact us today.
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