Which Super Fund for you – a Holden Commodore or a Rolls Royce?

This is a favourite question of mine and one that I love to get people to work on in my seminars. So what am I talking about?

I have been in the superannuation industry since 1988 and have worked on every side of the fence – advising retail, industry, company and my speciality – SMSFs. As most of us know there are hundreds of different superannuation funds and essentially we all are able to choose where we want our employer and voluntary contributions to go but guess what:

“If you don’t choose your super most of your money goes into the superannuation version of a Holden Commodore”

Now I am not disparaging the great Australian car but let’s face it, at the end of the day it could not compete price and options wise with other vehicles and certainly for those with a bit of money, it was not on the radar.

So what’s the deal with Holden Commodore super?

Well in Australia unless you make the choice your employer puts you into a default fund where:

  1. It is just you and you alone. You can’t combined your super with your spouse or your children to get the benefits of scale.
  2. Someone else makes the decision on what to invest in. For the most part these people are not individuals and are faceless and have NO idea of who you are – what you like and love and hate.
  3. Fees are about 1% whether your super goes up or down. For example, when the GFC hit and super went down by 20% – managers of super funds still charged 1% and continued for some time even though investment markets didn’t recover.

At the end of the day there are a few broad investment strategies, a few choices but it’s like choosing a Holden Commodore – black, blue or brown with only one seat and four cylinders.
So what’s the Rolls Royce? For me, a Self-Managed Super Fund (SMSF) is the Rolls Royce of super and where a lot of smart members put their money. Why a SMSF?

  1. A family can all join their superannuation resources together with the limitation that there is a limit of four members and all members must be Trustees of the Fund and take responsibility for the investment decisions of the fund. No one member only fund here!
  2. The costs for administering a SMSF will depend upon your accountant or on-line administration provider and they can range from $500 – $2,000. But with significant automation prices are coming down all the time. For some of the big SMSFs with more than $1M the fees as a proportion of the fund is very low.
  3. You, as Trustee of the Fund are the investment manager and there are a broad range of investments that the Trustee can invest in. One thing is the Trustee cannot deal with themselves – like buy an asset from themselves, lend to a member, lease a property to a child and so on. The one exception is business, commercial or farming property.