As of July 2005, Australian workers can now choose between a retirement savings account (RSA) and a superannuation fund (or super, for short). But what exactly is the difference between an RSA and a super fund?

Organization

Simply put, a super fund is managed by a trustee and must comply with certain government rules to ensure that your super is managed properly. Super funds are more like a mutual fund, in that they are their own entity. Types of super funds include: corporate funds available to employees of a certain company; industry funds available to those working in a certain sector; public sector funds, for government employees; retail funds run by financial institutions which are open to the public and self-managed superannuation funds, which are run by up to five private trustees.

A retirement savings account, on the other hand, is similar to a fund, but is not its own entity. Rather, it is an account offered by a bank, credit union, life insurance company or a financial institution that accepts contributions towards retirement.

RSA providers must be approved by the Australian Prudential Regulation Authority.  As of October 2009, the following institutions have been approved as RSA providers:

• Bananacoast Community Credit Union Limited
• QANTAS Staff Credit Union Limited
• Hunter United Employees’ Credit Union Ltd
• Queensland Country Credit Union
• Police Association Credit Co-operative Limited
• Savings and Loans Credit Union (SA) Ltd
• Queensland Police Credit Union Limited
• Defence Force Credit Union Limited
• Commonwealth Bank of Australia

RSAs offered by these institutions are sometimes called “superannuation savings accounts” or “super savings accounts.”

Employer Contributions

Employers are required by law to contribute 9% of the earnings to the super of each employee over the age of 18 (or working 30 hours or more) and under the age of 70 who earns more than $450 a month before taxes. Employers can also opt to contribute to an RSA or open an RSA on your behalf.

Individuals can also opt to make voluntary contributions to their super fund or RSA, which are tax deductible up to a certain point.

Retirement Benefits

Both RSAs and supers pay out upon retirement, disability or death and can be paid out as a lump sum or as a pension or annuity.

The amount that is paid out by a super fund is determined either by accumulation (i.e. how much has been paid in plus return on investment minus fees and taxes) or defined benefit (i.e. amount paid in plus a set formula, such as years of service and age).

Retirement savings accounts are “capital guaranteed” meaning that the amount paid out can only be reduced by fees and charges. Like any other savings account, RSAs accumulate interest over time, which is added to the principal. Interest rates vary depending on balance and the market.  Unlike a super fund, which may lose value due to poor investment performance, the principle of your account is not subject to market volatility.

Taxes

Both RSA and super funds have a concessional tax rate of 15% for contributions. Interest from RSAs is also taxable at 15%. However, when receiving a pension or annuity from RSA, you are not required to pay tax on investment income.

Fees

Super funds typically charge management fees up to 3% of the balance, as well as transaction fees and termination fees.  The fee structure for RSA fees vary depending on the provider, but are typically a flat rate based on your balance, with some RSA providers charging no ongoing fees at all.  Additionally, RSA providers are not allowed to charge fees that exceed the interest credited to the account for balances less than $1,000.

Insurance and Other Services

Many super funds also provide insurance and death and disability protection. Likewise, RSA providers sometimes offer optional insurance policies to retirement savings account holders. The fees and coverage for such plans varies depending on the provider, but are often better than life insurance plans purchased independently.

Benefits and Considerations

The fee structure for RSAs is much simpler than those of super funds, and the capital guarantee ensures that you will not lose any money on bad investments. However, most RSAs are extremely conservative in comparison and may fail to beat inflation over the years. You may wish to discuss your options with a financial planner before deciding between an RSA or super fund.

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