What is a Super Fund?
During the recent chaotic economic and investment times it was not unusual for people to say that superannuation was not worthwhile because of how badly it was performing. This attitude shows a misunderstanding of exactly what superannuation is.
Understanding that superannuation is only a vehicle for accumulating funds for retirement, and it is the combination of administration costs, investment costs and investment returns that affects the performance of a person’s superannuation, is a vital first step in choosing what fund is best for you.
Put simply, a super fund is an entity that invests funds held on trust for its members. It is therefore a trust, and every super fund has a trust deed that sets out what its rules are. Being a trust, the administration of the super fund is the responsibility of the trustees of the fund.
There are two main components to every super fund. The first is the administration and the second is the investing. These are two distinct jobs within a super fund, and each carries with it a different set of costs.
The administration role of the fund is the responsibility of the trustees. They have to ensure the contributions, income, expenses and payouts are dealt with properly. An administration fee is charged to the members for this service by the trustees of super funds, except for SMSFs.
The investment function of the super fund can be done by the trustees, but in most cases this job is given to professional fund managers. The costs of the investing function can include direct costs of buying and selling investments, such as brokerage and bank charges, and the costs of the managers investing the money. Their administration costs are often not an additional cost to super fund members but are deducted from the overall investment returns of the funds invested.