In the third of a six-part series on corporate superannuation, Mark Beyer looks at industry funds.
INDUSTRY funds have been among the fastest growing segments of the superannuation industry over the past decade.
They also claim to be one of the most misunderstood, as they battle perceptions they are simply ‘union’ funds for shopfloor workers.
This perception flows from the funds’ origin in the mid 1980s, when they were created in response to the introduction of award superannuation and, later, compulsory superannuation.
Most industry funds serve specific industries. For instance, REST serves the retail industry, HESTA the health industry and C+BUS the construction and building industry.
Some industry funds have a wider brief, with the prime example in Western Australia being West-scheme.
In total there are 109 industry funds managing $52 billion of assets, according to the Australian Prudential Regulation Authority.
They manage about 10 per cent of Australia’s total superannuation savings, which is more than double the market share they held in the mid 1990s.
The main selling point of industry funds is that, as not-for-profit entities, they provide a low-cost good-value alternative
Former Reserve Bank governor Bernie Fraser has become their front man, promoting “the super of the future”.
For employers looking to out-source their superannuation, industry funds provide an alternative to master trusts and retail super funds.
The larger industry funds can manage all key aspects of superannuation, including the trustee role, administration, investment and insurance as well as certain member services, such as member education.
PricewaterhouseCoopers director investment and superannuation consulting, Catherine Nance, said industry funds were a legitimate outsourcing option.
She normally obtains quotes from industry funds, as well as master trusts and retail funds, when she is assessing alternatives for clients.
The low fees charged by industry funds are a key advantage, though Ms Nance noted that the visible fees charged by industry funds, as with all super funds, do not always tell the whole story.
A complication with industry funds is their practice of absorbing some of their costs within their net investment returns.
On the downside, industry funds offer a standardised product with very limited flexibility.
They also have fewer features than master trusts. For instance, they generally do not offer the same level of investment choice.
Ms Nance said industry funds also tended to have higher insurance costs, since they had to meet the needs of a wide range of workers, including casuals.
She has encountered many instances where employers have ruled out the industry fund option, because of the perception they are only for lower paid employees.
Canning Vale printing and mail house company Zipform is a local employer that selected an industry fund for its 80 staff.
Financial controller John Perriam said the company formed a committee, with management and shopfloor representatives, to review its superannuation last year.
A range of providers, including industry funds and master trusts, made presentations to the committee.
“The lower fees charged by industry funds was the key attraction,” Mr Perriam said.
“In net terms, this leads to a higher investment return because more of the employee’s money stays in their account and adds growth to their portfolio. The non-industry funds are there to make a profit and deduct various fees and charges whereas industry funds exist for the maximum benefit of their members.
Mr Perriam said all of the industry funds the committee assessed were fairly similar.
They ultimately opted for West-scheme because of the extra services it offered, including regular member seminars. Nearly all of Zipform’s staff had opted to switch to West-scheme from the previous retail super fund.