Comparing super a worthwhile exercise

ALL Western Australian workers have compulsory superannuation, but how many people have compared their super fund with the alternatives?

This comparison is highly relevant for workers covered by Western Australian industrial awards. They already have the right to choose their own super fund.

The Federal Government is expected to introduce its own “choice of fund” legislation. Once this happens, virtually all workers will have the right to leave their existing super fund and move their money elsewhere.

This will put more pressure on employers to ensure that the fund they currently use or recommend is competitive.

Most workers have their super in one of the following.

p Retail funds, including master trusts, offered by groups like MLC, AMP and Asgard.

p Public sector funds, for government workers.

p Corporate funds, covering staff of specific companies.

p Industry funds, which commenced in the mid-1980s when superannuation entitlements were written into industrial awards.

Differences between these funds are breaking down as a more comprehensive range of services is introduced.

One of the most significant developments is that most funds now allow members to select their own investments.

A survey by Chifley Financial Services found that 75 per cent of industry, corporate and public sector funds currently offer, or plan to offer, investment choice. In most cases they offer between two and five investment options.

Master trusts offer much greater investment choice. A survey by Rainmaker Information found that master trusts offer an average of 29 investment options.

Another key issue is fees. The Chifley survey found that 62 per cent of funds charge $1 or less in weekly administration fees. At the other end of the scale, 8 per cent charge more than $2.50.

The survey does not include retail funds, which often charge higher fees, although getting a like-for-like comparison is fraught with difficulty. As well as administration fees, funds also may levy entry and exit fees, investment management fees and trustee fees.

A further complication is that some funds charge a set fee (eg $1 per week) while others charge a percentage fee (eg 2 per cent of the account balance). In the latter case, the amount paid in fees increases as your savings grow.

Master trusts traditionally have the highest fees, on the basis that they offer more investment options, flexibility and admini-strative convenience. Individuals need to assess whether the benefits of being in a master trust or retail fund justifies the higher fees.

They should also think carefully before joining a fund that has a complicated fee structure. It is advisable to obtain professional advice if the choice seems too difficult.

However this can raise an added complication. Individuals need to check whether their investment adviser receives a fee or commission from the super fund they recommend. If so, the commissions should be disclosed.

The Chifley survey found that many super funds offer a range of add-on services. For instance, 56 per cent of funds offer housing loans, 13 per cent offer investment loans and 42 per cent offer financial planning.

Death and disability insurance is offered by about 90 per cent of funds, while 47 per cent offer income protection insurance.

Fund members may achieve substantial savings if they can obtain these services through their super fund, especially if the fund has negotiated a discount with the service provider. Members also should check whether they have to move their money when they retire. Chifley found that 50 per cent of funds offer a rollover facility, while 40 per cent offer an allocated pension.

Industry funds back new bank

MEMBERS Equity, a venture backed by industry superannuation funds, has become Australia’s newest bank.

The joint shareholders in Members Equity are AXA Asia Pacific (formerly National Mutual) and Industry Fund Services, which is owned by a range of industry funds. Members Equity is best known for marketing low-cost housing loans under the Super Members’ Home Loan brand.

During the past seven years it has sold more than $5 billion in housing loans.

It will now be able to offer a full range of banking products targeting personal and small business customers, including transaction accounts and credit cards.

“The products to be offered will be straightforward and easy for customers to understand, and will not involve complex or hidden fee structures,” Members Equity chairman, former Reserve Bank Governor Bernie Fraser, said. “At board and mana-gement level, customer needs and service will have equal importance with shareholder interests.”

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