In September, Industry Super Network released new research revealing that, on average, members of Australia’s retail super funds would have been better off putting their money in the bank, rather than investing with retail funds over the past 14 years. The report, A Comparison of Long Term Superannuation Investment Performance, by ISN’s chief economist, Dr Sacha Vidler, compares the long-term investment performance of the four key APRA-regulated sectors (corporate, industry, public sector and for-profit retail funds) to each other and to suitable benchmarks over a 14-year period, using published APRA data. Key findings of the report include: • Retail funds have on the whole underperformed cash (a risk-free investment) even after making suitable deductions for administration and earnings tax.
(The average cash rate of return over this period was 4.23 per cent per annum.) • The internal rate of return to investors in retail superannuation funds lagged the not-for-profit funds by 2 to 3 per cent per annum. • If retail funds had earned industry fund returns, retail fund member assets would have grown to $426 billion by June 2010, instead of the $343 billion actually achieved. • Not-for-profit fund members benefit from economies of scale – both in terms of fund size and average account size – but retail fund members do not typically receive any benefit from increased scale. • Over the 14-year period, asset allocation has been a significant driver of net returns, with an allocation to major unlisted asset classes having an overall positive effect on returns and an allocation to foreign assets and foreign currencies having a powerful negative effect on returns. The report found that, over the 14 years, the largest retail funds performed no better than very small retail funds, whereas among not-for-profit super funds, larger funds delivered an increased return to members on average.
The report also cites APRA research, which found that retail funds paid related parties a staggering 2.6 times the market rate on average for services. The report’s findings are of major concern, given that more than 42 per cent of assets in APRA-regulated funds and 27.5 per cent of assets in all super funds are held in retail super funds, and billions of dollars of Australians’ compulsory super contributions were paid into these funds by default (as at June 2011). What is clear is that with eight in 10 employees either not choosing their own Casino utvecklarens mjukvara bjuder pa en katalog pa over 100 olika spel, och bland dessa marks varldsberomda spelautomater som Mega Fortune, Hall of Gods och Arabian Nights, med progressiva jackpots i mangmiljonklassen. super fund or relying on the workplace default fund, the system to determine the default fund needs to be one that has integrity and generates confidence in, and gains the trust of, employees. The foundation of this process is to ensure that employers and employees are involved in this selection process. For some workplaces, this can be achieved through workplace bargaining.
In others, where a tender is run to select the workplace default fund, employees or unions must be formally included in the process. However, for many workplaces, typically small and medium-sized workplaces, many employers feel no better equipped than their employees to select a fund, and bear the greater responsibility of making a decision on behalf of their employees. For this reason, the industrial award system offers clarity and a process through which employers can confidently select a fund. By necessity, a limited number of funds from which an employer selects the workplace default fund is required. It is appropriate that unions and employer associations – as representatives of employees and employers respectively – make these selections based on clear and published objective criteria.
The response by retail super funds to Vidler’s research was predictable, rejecting the data produced by the regulator. This is despite the fact that league tables produced by commercial ratings agencies tell a similar story, notwithstanding differing methodologies. There is yet to be a league table that shows retail super funds outperforming industry super funds over the long term as a sector. Equally, individual retail super funds have yet to be among the best performing funds over the long term. The reforms proposed by the Government should go some way to establishing a system where net returns drive competition and all super funds aspire to be the best performer over the long term, and are rewarded for being so. This is not a radical proposition; it is competition.
