Most people who deposit money into their super will also usually get the choice of which investment options they wish to participate in. The industry fund is just one of many types of super that are available. Industry funds allow all who are participating to invest under one trustee. Formerly reserved for those working in specific industries, industry funds are now available to the general public.
But there is another option: the wrap account. Consolidating all investments including term deposits direct shares and managed funds, the wrap account is offered as a single product by super providers. It does have several differences when compared with industry funds.
Tax Rebates and Benefits
One of the main differences between wrap accounts and their industry fund counterparts is that far less tax is deducted from SG, salary sacrifice or PAYG contributions made by you or your employer. Only 3% tax is deducted when these contributions reach a wrap account. For money contributed to an industry fund, that rate increases to 15%.
As well, wrap accounts allow you to claim rebates and tax deductions via franking credits, where industry funds do not. The reason for this is because all members in an industry fund pay the same tax rate on pooled funds. Franking credits permit Australian companies to pass any paid tax on the company level to their shareholders when dividends are paid.
Benefits and Disadvantages
Wrap accounts allow investors to access wholesale funds as well as boutique investments. As well they allow for the simplification of the administration of super funds, which can significantly reduce the stress of retirement planning.
This type of account also allows access to all kinds of investments using one access point. Investors using this type of account can also view their consolidated holdings reports from a single location, and receive a single annual tax report for all of the funds in their wrap account.
The wrap fund also has the benefit of portability. All of the investments in a wrap fund are owned by one person. This means that they can be moved in and out of the account at will.
However, wrap accounts also include several fees. Investment management fees are charged by all underlying funds in a wrap account in addition to those fees already charged by the wrap account itself. Thankfully, investment management fees are charged on a wholesale basis, because wrap accounts negotiate rebates on fees using their market share.
Other charges include transaction fees, which are usually incurred as the result of the purchase or sale of investments. Along with the regular transaction fees, investors may also incur fees related to the buy/sell spread, as well as brokerage fees.
The best superannuation advice to follow with regard to any type of super fund or account is that given by a professional. Our experts are ready to provide you with a 30-minute consultation, absolutely free, so that you can get the advice you need. You can also download our eBook, which can also answer many of your questions, at no cost to you.
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