DIY Super For Dummies. Power Trish

Chapter 7.

      

Two key elements separate super funds from the thousands of managed funds that exist out there in the financial wild:

      ✔ The requirement that a super fund makes an election for regulation by the SIS Act.

      ✔ A super fund’s complying fund status.

      These two features make your super fund eligible to receive tax concessions (for info about these tax breaks, see Chapter 13), and to receive your employer’s compulsory contributions and your own contributions (I discuss these contributions in more detail in Chapter 4).

      If you haven’t actively chosen your super fund, since 1 January 2014, your employer’s compulsory SG contributions have been paid into a MySuper product chosen by your employer. A MySuper product is a super fund that has a single diversified investment option and simple features, which are designed to make it easier to compare super funds. I explain the role of a MySuper fund in the section ‘Discovering seven fund types on your super safari’ later in this chapter.

      

Only complying superannuation funds can receive superannuation contributions and get concessional taxation treatment; that is, pay lower tax rates. If you break the super rules, your SMSF could be deemed to be ‘non-complying’ and you potentially lose up to half of your fund assets. The stronger likelihood, however, is that if your SMSF breaks the super rules, your SMSF, or you as SMSF trustee, will be hit with financial penalties (covered in Chapters 9 and 11). Having complying fund status, however, doesn’t guarantee that your fund is going to deliver positive returns.

      

If you want to know whether your current fund – or another fund that you’re considering joining – is a complying fund, you can check a list. The government’s Super Fund Lookup website (http://superfundlookup.gov.au) is a publicly available list of all complying superannuation funds in Australia (that is, SMSFs and super funds regulated by APRA). If you decide to set up your own super fund, your SMSF will also join this list. You can then type in your super fund’s name to check that your fund is complying. If your SMSF has not yet lodged its first annual return (for info on doing so, see Chapter 12), your SMSF will be described as ‘Registered – status not determined’ on Super Fund Lookup. This means that the SMSF can still accept super contributions and transfers from other super funds.

      Recognising Your Super Type from a Distance

      Have you been hunting lately? Hunting, that is, for information about your super fund? Superannuation funds are strange beasts, really. They can change shape depending on the person or company running them. You can identify the type of superannuation fund in most cases by looking at the organisation running the fund.

      Understanding the type of fund that either you belong to or you’re considering joining is very important because different funds offer different benefits at varying costs.

      The main purpose of your super fund is to enable you to have a better life in retirement by getting the best returns possible on your super investment. Getting good insurance coverage in your fund, or outside your fund, is an excellent idea, too (for info on insurance and super, see Chapter 24).

      Super funds invest in shares, property and other investments just like you do, but super funds are often a more tax-effective option; that is, they’re able to take advantage of much lower rates of tax than you may ordinarily pay on your non-super investment income (for information about super’s investment rules, see Part IV in this book). Basically, a superannuation fund is a tax-effective vehicle for investing your money with special bells and whistles, and lots of rules.

      Earlier in this chapter I discuss traits that identify super funds (refer to ‘Appreciating a Super Fund’s DNA’), but you don’t need binoculars to spot one of the 537,300 or so superannuation funds in Australia, because just under 537,000 of them are small funds; that is, with four members or less. If you are a member of a large super fund, or considering a large super fund, then you have only 294 super funds (as at June 2014) to choose from. Just under 300 super funds may still seem overwhelming, but the good news is that there are only seven types of super fund available, which are relatively easy to spot: A SMSF, or one of six types of super funds with professional trustees. I explain these types of super funds in the following section.

      Discovering seven fund types on your super safari

      You can expect to find seven broad types of super funds in the super fund market, although six of these types of funds are professionally managed for you. Only one type of super fund, a SMSF, gives you total control, and also total responsibility, for your retirement savings.

      The following list describes the six broad types of managed superannuation funds:

      ✔ Industry funds: An industry fund often caters for workers from a particular industry, but many of them are now available to anyone.

      ✔ Company/corporate funds: A company fund or corporate fund is ordinarily a super fund with membership only open to employees working for that company. You can’t choose a company fund, but you may choose to remain in a company fund if you’re an employee of the company and an existing fund member. Some company funds permit relatives of existing members to join, too.

      ✔ Public sector funds: A public sector fund is usually only available to public sector employees and, in some cases, ex-public sector employees. You can’t choose a public sector fund, although some of them let you choose to remain a contributing member when you leave the public sector – in these circumstances you may be able to arrange for your new employer to contribute to your public sector fund.

      ✔ Retail funds or master trusts: Retail super funds are funds run by financial institutions such as banks, financial planning groups and fund managers. Anyone can join these types of funds, or master trusts. A master trust is an investment vehicle that pools money from individual investors or individual superannuation funds and invests this money into one or more underlying investment vehicles. You may be a member of a retail fund if your employer pays your SG contributions into a corporate master trust. A corporate master trust is just like a master trust for individuals but on a much larger scale. Banks and financial groups also offer what is commonly called a ‘super wrap’, which gives your super account access to many investment products via a single administration platform (for more info about super wraps, see the next section).

      ✔ Small APRA fund – a managed form of DIY super fund: Small APRA funds (for a definition, refer to Chapter 1) are not as popular as SMSFs, although a small APRA fund often offers the investment flexibility of a SMSF but a professional trustee runs the super fund. I explain the key differences in Chapter 1, and provide more details in ‘What makes a SMSF different from other funds?’, later in this chapter.

      ✔ Retirement Savings Account (RSA): A Retirement Savings Account (RSA) is a low-risk and low-return superannuation account provided by banks and other financial organisations. An RSA is not officially a super fund. RSAs, however, are more a parking vehicle rather than a long-term investment option. RSAs represent less than 1 per cent of all money invested in the superannuation market.

      

An easy way to find out what type of superannuation fund you belong to is by reading the material that your fund gives you. If possible, check your fund’s website. All super funds (including SMSFs in some circumstances) must make available a detailed information booklet or Product Disclosure Statement about the fund – it’s a document that should