Industry Super Funds have experienced a huge inflow of new members in recent years, with many distrusting banks and financial services providers to deliver a product that suits their needs. According to KPMG, Industry Super Funds will become the largest single segment in the Superannuation industry by 2020.
So is an industry fund right for you?
Fees: Industry funds are known for relatively low fees, which is a great start. When investing, we’re big believers in controlling the aspects of the investment that can be controlled – often this means keeping an eye on costs.
Insurance: Industry funds provide easy access to economical insurance solutions. With so many Australians relying on insurances within Super to protect their financial lives it’s an important consideration. Most industry funds provide a level of cover automatically upon joining the fund. Default cover is easily obtained and inexpensive.
It’s important to ensure the amount you’re covered for is adequate. Having $200,000 in life cover may be suitable for some but if you have a significant mortgage and would like to leave your family debt free it’s likely you’ll need significantly more.
Default insurances can also have wording and definitions that make it more difficult to claim (in comparison to retail insurance). The most common example is having a pre-existing condition. Often this type of insurance has an exclusion for any pre-existing medical conditions. If you’ve received treatment, have been diagnosed with or are aware of a medical condition before obtaining the cover, any claim involving that condition will likely be denied.
Another feature to keep an eye on is the Total and Permanent Disablement (TPD) definition. Most super funds only offer an “Any Occupation” definition for TPD cover. In order to satisfy an Any Occupation TPD claim you would need to be unable to work in not just your own occupation, but any occupation to which you are suited to by education, experience and training. This differs from an “Own Occupation” definition, whereby you only need to satisfy the insurer that you are unable to work in your own occupation. There is some complexity involved in this definition, as Any Occupation can be funded from Super and Own Occupation can’t. Most retail insurers do offer a way around this, whereby the Any Occupation is funded inside super and the Own Occupation is funded outside.
It’s also important to review your income protection (sometimes called salary continuance) insurance. Make sure you’re aware of the benefit period as some only provide 2 or 5 years of cover. The benefit period is the length of time that the insurer replaces your salary. Most people would like to be covered ‘to age 65’. As an example, a 35 year old who suffers an illness or injury that prevents them from working ever again will be paid 75% of their salary for 2 years, 5 years or to age 65 – regardless of their ability to return to the workforce.
Investments and performance: Industry funds provide members with access to competitive investment returns and have a good history of delivering positive performance.
When assessing the performance, it’s important to understand the periods that are being reported. As an example, CBUS, Care Super and HESTA advertise their funds performance returns on their website but the most recent period is the 12 months leading up to 30 June 2018. This makes it difficult to compare alternatives when most Super funds report their 12 month return on a monthly basis.
It’s also important to understand that performance isn’t linked to the Super Fund, it’s linked to the investment option you’ve selected within your Super Fund. The Australian Super Balanced Fund returned 8.67% for the 2019 Financial Year, but if you’re invested in the Diversified Fixed Interest Fund your return is 4.90% for the period.
Many industry funds are more aggressive than meets the eye. You should consider the ratio of growth assets to defensive assets. Growth assets include Australian and international shares, property, infrastructure and private equity – assets that you can expect to be more volatile. Defensive assets include fixed interest (government and corporate bonds) and cash.
The Australian Super Balanced Fund, for example, has a 79% allocation to growth assets and a 21% allocation to defensive assets. You need to be comfortable with the risk within the investments you’ve chosen. When comparing performance you also need to be aware of the asset allocation of the fund you’re comparing.
The below performance and asset allocation figures were obtained from the website of the relevant fund provider. The figures relating to the CXC Financial Partners portfolio were obtained from an actual client portfolio who was fully invested in the model portfolio over the full financial year. All performance fees are net of investment fees.
Industry funds can be a good solution for your retirement savings however it’s important that you consider the fees you are paying, the insurances you have, the investments you hold and investment performance. In doing your research make sure you understand the product and how that impacts you and your needs.
If you’d like personalised financial advice tailored to your circumstances, contact the team today.
While every attempt has been made to ensure the accuracy of this information at the time of compilation, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors or omissions (including responsibility to any person by reason of negligence) is accepted by CXC Financial Partners, its officers, employees, agents or representatives.
All contents presented within this document are not to be construed as personal financial advice, taxation advice, a recommendation or an offer or invitation to buy, sell or hold a financial product. It is for general informational purposes only.
Past performance is not a reliable indicator of future performance. Investing in financial products comes with risk. Talk to a CXC Financial Adviser to see how we can help you.
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