Industry Superannuation Funds Vs. Self-Managed Super Funds

When you’re serious about planning your retirement, it’s crucial to examine the superannuation fund you’ve been steadily building. Generally, you’ll be considering two types of funds – Industry Superannuation Funds and Self-Managed Superannuation Funds (SMSFs). 

Industry Superannuation Funds, also known as profit-for-member funds, are designed to benefit their members and are the largest fund type in terms of assets under management. They are not owned by major banks or financial institutions and are typically low to medium cost accumulation funds. The proceeds are reinvested into the fund, aiming to deliver stronger investment returns to investors in the long term.

Your employer may offer you an associated industry superannuation fund as the default choice if you work in a particular industry. However, you are not obligated to join the superannuation fund selected by your employer or industry, giving you the freedom to join any superannuation fund you prefer.

On the other hand, a Self-Managed Superannuation Fund (SMSF) is a private superannuation account to which you or your employer contributes, and you directly manage the account. You have complete control over the investments and insurance options within the fund. While this offers significant flexibility, managing an SMSF can be quite labour-intensive.

As a member, you act as the fund's trustee (or you can hire a corporate trustee). Essentially, you are responsible for overseeing your own SMSF, with the option to have up to six trustees (and members) in your fund.

Choosing between Industry Super Funds and SMSFs is akin to choosing between a mostly hands-off experience with your retirement savings or a very hands-on approach. Your level of financial literacy and willingness to manage your superannuation fund are key factors in making this decision. Both options have their own set of pros and cons, so it's essential to carefully weigh them before deciding how to invest your money for the best return.

Let’s delve into the pros and cons of both.

Pros of Industry Superannuation Funds —

• Not-for-Profit Nature – All profits are reinvested into the fund for the benefit of the members.

• Professional Management – Members don’t have to manage the fund themselves; professional licensed trustees ensure compliance and smooth operation.

• (Sometimes) Low Fees and Costs – Because industry funds are run for members instead of shareholders, they can typically charge lower fees.

Cons of Industry Superannuation Funds —

• Limited Investment Choice: There’s less freedom in selecting specific investments, potentially leading to lower returns compared to funds with more investment opportunities. You also have less say as to what type of investments the fund invests in, and how ethical these investments are.

Pros of Self-Managed Superannuation Funds —

• Flexibility and Control – Members have control over the portfolio’s management and can modify the fund agreement to reflect their preferences.

• Wider Investment Options – Access to a greater variety of investments, including art, collectibles, property, and more, in addition to stocks, fixed-interest investments, and managed funds.

• Quick Decision Making – Trustees can make swift decisions based on real-time information about the fund’s performance, unlike retail or industry superannuation funds where performance updates may be delayed (retail/industry funds generally send performance reports after the effect, every 6 months).

• Cost-Effective Setup – Depending on the fees involved, setting up and managing an SMSF can be more affordable compared to other funds. 

Cons of Self-Managed Superannuation Funds —

• Time-Consuming – Requires considerable preparation and ongoing effort to manage the fund, including researching and selecting investments and monitoring their performance.

• Limited Dispute Resolution – SMSFs may have limited access to dispute resolution bodies, potentially leaving trustees without adequate legal support.

• No Government Compensation Schemes – SMSFs are responsible for their own losses and typically cannot access government compensation programs available to other funds.

• High Responsibility – Managing an SMSF carries a high level of responsibility, as losses cannot be recouped through regulatory authorities, and breaking laws or guidelines can have serious repercussions.

Now, what are the distinct differences between Industry Funds and SMSFs? 

We’ll break it down into categories. 

Investments – 

Industry Funds: Members have limited control over the mix and risk level of their super investments and cannot select specific investments. 

SMSF: Members make all investment decisions and carry out any investment strategy put in place by their fund. 

Memberships and Trustees –

Industry Funds: Generally have no limit on memberships.

SMSF: Limited to a maximum of six trustees.

Regulation – 

Industry Funds: Regulated by the Australian Prudential Regulation Authority (APRA) but members do not deal with them directly.

SMSF: Regulated by the Australian Taxation Office (ATO), and members deal with them directly.

Responsibility –

Industry Funds: Taken on by the professional licensed trustee for industry funds.

SMSF: Taken on by the SMSF members.

Insurance – 

Industry Funds: Typically offer insurance to members at a lower cost because large funds can obtain discounted premiums.

SMSF: Insurance is optional and can be more expensive than insurance for other super funds.

Government Compensation Scheme –

Industry Funds: Eligible for statutory compensation in the event of complaints or disputes.

SMSF: Not covered in case of complaints or disputes.

Fraud or Theft – 

Industry Funds: Eligible for government financial assistance in the event of fraud or theft.

SMSF: No government financial assistance available, but members may have legal options under Corporations Law. 

If you're considering having both an Industry Superannuation Fund and a Self-Managed Superannuation Fund (SMSF), it's important to note that there are no laws preventing you from doing so. However, this approach may lead to unnecessary fees and charges, which could ultimately reduce your overall retirement income.

From the way we look at it, if you have the time to set up and manage an SMSF, you should strongly consider going down that road. When comparing Self-Managed Superannuation Funds (SMSFs) to Industry Superannuation Funds, the advantages of an SMSF become evident. With a SMSF, individuals have direct control over their retirement savings, allowing for a tailored investment approach that aligns with their risk tolerance and financial goals. This control extends to investment diversification, with SMSFs offering a broader range of investment options compared to Industry Funds. Additionally, SMSFs can be more cost-effective in the long run, as individuals have more control over the fees and charges associated with managing their fund. Furthermore, SMSFs provide greater flexibility in estate planning and transparency in fund performance, enabling members to make informed decisions about their retirement savings. While managing a SMSF requires time and effort, the benefits of control, diversification, and cost-effectiveness make it a compelling option for those seeking greater autonomy over their superannuation investments. 

If you need assistance in deciding which path to take or if you're unsure about how to embark on your Self-Managed Superannuation Fund journey, FRE.DM Wealth is here to support you. We can help you take charge of your retirement savings and guide you on how to grow your wealth in the most beneficial way for your future. Let’s chat today on how to grow your wealth in the best possible way for you.