Reasons Why Industry Super Funds Are Good
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- Hesta and First State Super (nee Health Super) are household names for doctors.
- Industry funds are good.
- Industry funds provide low cost universal life insurance, and you can increase the sums insured easily on line. It can potentially be the cheapest way to get life insurance.
- Interested in comparing super funds?
- General advice warning
Hesta and First State Super (nee Health Super) are household names for doctors.
They are both “industry funds”. That is, super funds set up after the historic 1984 Hawke government union accord to receive the initial 3% of mandatory super contributions. They were originally called “union funds” but over the decades morphed into “not-for-profit public offer superannuation funds”, which means they now accept anyone as a member. We will call them “industry funds”.
Industry funds are good.
Industry funds have been shown to outperform the institutionally owned so called “retail funds.” Chant West says industry funds dominate the investment performance tables with as many as nine out of the top ten spots in 2018.
Over a 40-year working life a superior fund performance of just 0.40% per annum could mean an extra $100,000 cash for most doctors. Precision is difficult because it depends on how much is contributed but our estimate of $100,000 may be on the conservative side for most doctors and their partners.
Why such a big difference? It’s all to do with lower costs and being not for profit. All the big super funds invest pretty much the same way. But industry funds have lower costs and do not pay dividends to shareholders so their net returns can be better.
Industry funds are well run. They are not for profit and have employee representation on their boards. This member orientation is philosophically reassuring and sits well with most medicos.
Industry funds are not without their critics. Most financial planners are dead set against them. The financial planning industry is 80% controlled by banks and life offices, so the financial planners’ commercial interests are diametrically opposed to industry funds. They are the competition.
Eddie Maguire won’t tip against Collingwood, and many financial planners won’t recommend industry funds to their clients. It’s obviously not in their clients’ best interests, as mandated by the Corporations Act. But it is the reality of the financial planning industry.
Industry funds have been criticised for having poor service, particularly when a member dies. However, at Curve we have not seen one example of poor service on death benefits.
One valid criticism involves income protection. Industry fund income protection insurance is usually inadequate for doctors. Not big enough and not long enough. Doctors are well advised to have additional income protection or to ensure their specific needs and criteria for insurance is met along with a sensible sum insured (it does not have to be the underwriter’s maximum!).
Industry funds provide low cost universal life insurance, and you can increase the sums insured easily on line. It can potentially be the cheapest way to get life insurance.
For investment options, provided there is comfort in taking risk and a doctor has a long investment time frame, exploring the growth and high-growth investment options can make sense. The maths of the matter means you will likely do better. And, paradoxically, over a ten-year plus period it’s less risky too.
One weakness is advice capability. Industry funds have low adviser: member ratios. Getting advice, particularly non-fund advice, can be hard. But this is changing, and the industry funds homogeneous memberships are well suited to robo-advice and other disruptive and growing low cost systemised advice services.
Some doctors are really into investing. Others are not. Whatever your inclination be assured that if you stay in your industry fund’s “high growth” mode for the whole of your career your super will almost certainly do better than a retail fund.
It’s all to do with the costs. Industry funds have lower costs. And it’s all to do with profits. Industry funds pay profits back to members, not shareholders.
You can learn more about why industry funds are so hard to beat here: Why industry funds are hard to beat
Interested in comparing super funds?
Canstar have an on-line tool for comparing super funds and you can access it here: Compare super here.
General advice warning
This article is general advice only and you should seek specific advice from a financial planner at Curve before acting on its contents.
Helpful tip:
Compare industry super funds based on investment performance, fees, insurance cover, and member services before making a decision. Review your super fund regularly to ensure it continues to meet your retirement objectives. Small differences in fees and returns can have a significant long-term impact.
BERIVAN DUBIER
DIRECTOR
Reviewed by
SEAN DWYER
Edited by
Alix Dower
PRACTICE MANAGER
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FAQ
What is an industry super fund?
Are industry funds always better than retail super funds?
How much difference do superannuation fees make?
Fees reduce the amount remaining in your account to invest, so even a modest annual difference can matter over many years. Compare total investment and administration costs at your likely account balance, as well as any transaction, advice or insurance charges. The lowest fee is not necessarily the best choice if the investment approach or other features do not meet your needs.
Should I choose a growth or high-growth investment option?
Your investment choice should reflect how long your money may remain invested, your capacity to bear losses and how comfortable you are with market falls. Growth options generally hold more growth assets and may experience larger short-term swings. A long investment horizon can help you manage volatility, but it does not make losses impossible or a high-growth option automatically suitable.
What should doctors check about insurance inside super?
Check the amount and terms of life, total and permanent disability, and income protection cover, rather than relying on a fund’s default insurance. For income protection, consider the benefit and waiting periods, how your income is defined, exclusions, premiums and whether the cover fits your clinical and practice income. Fund cover can be convenient, but individual circumstances may call for different or additional cover.
How can I compare super funds fairly?
Compare like-for-like investment options over a meaningful period and consider returns after fees, risk, insurance and the services you use. The ATO YourSuper comparison tool covers MySuper products, while fund disclosure documents and APRA data can help with further checks. Past performance is useful context but cannot predict future returns.
What should I check before switching or consolidating funds?
Confirm the new product’s fees, investment option, insurance eligibility and cover before transferring a balance. Closing an existing account can end its insurance, and replacement cover may have different exclusions or require an application. Also check any special benefits, defined benefit interests and where future employer contributions will be paid.
When might personal financial advice be useful?
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