Super funds are on track to finish 2019 with the strongest returns in years, defying fears of a market fade in the final quarter. While market conditions have been challenging, investors have not yet succumbed to the negative economic headlines, which has been good news for super funds.

If momentum holds up through the rest of the year, members in the median balanced option will be looking at an annual return of around 15.0% for 2019 – a result not seen since 2013.

According to leading research house SuperRatings, funds have done a good job of managing uncertainty, which has only been exacerbated by global risks and challenging economic conditions at home. But while consumers are feeling the pinch, their super is holding up well.

A rebounding share market saw the ASX 200 Index return 3.3% in November, putting Australian shares on track to deliver a return of around 26.0% for 2019, which would be the highest investors have seen since 2009. This is despite weakness from the major Financials sector, which slipped 2.0% over the month as the major banks were marked down due to the lower interest rate outlook, while Westpac (-13.1%) was the latest to be hit with negative headlines.

Looking at November’s results, the median balanced option returned an estimated 2.0% over the month, with Australian shares contributing 0.6% and international shares 1.0%, bringing the year-to-date return to 14.8%. The median growth option delivered an estimated 2.3% over the month, bringing the year-to-date return to 17.2%.

Over the past five years, the median balanced option has returned an estimated 7.9% p.a., compared to 8.7% p.a. for growth and 4.9% p.a. for capital stable (see table below).

Estimated accumulation returns (% p.a. to end of November 2019)

YTD 1 yr 3 yrs 5 yrs 7 yrs 10 yrs
SR50 Growth (77-90) Index 17.2% 15.2% 10.5% 8.7% 10.4% 8.6%
SR50 Balanced (60-76) Index 14.8% 13.4% 9.3% 7.9% 9.3% 8.0%
SR50 Capital Stable (20-40) Index 8.3% 8.5% 5.5% 4.9% 5.4% 5.6%

Source: SuperRatings

Pensions products have similarly performed well over the course of 2019, with the median balanced pension option returning an estimated 16.3% year-to-date to the end of November, compared to 19.6% for growth and 9.6% for capital stable.

Estimated pension returns (% p.a. to end of November 2019)

YTD 1 yr 3 yrs 5 yrs 7 yrs 10 yrs
SRP50 Growth (77-90) Index 19.6% 17.1% 11.5% 9.9% 11.7% 9.6%
SRP50 Balanced (60-76) Index 16.3% 14.9% 10.0% 8.5% 10.2% 8.8%
SRP50 Capital Stable (20-40) Index 9.6% 9.4% 6.3% 5.7% 6.2% 6.4%

Source: SuperRatings

“We may not have seen the ramp up in shares before Christmas that some were hoping for, but it’s still safe to say that 2019 has been a highly successful year for super funds and their members,” said SuperRatings Executive Director Kirby Rappell.

“It’s been a nervous year for investors, so it’s great to see that super can deliver some much-needed stability and solid returns during this period. There might not be a lot of positive economic news at the moment, but at least super is one story we can all draw some hope from.”

“Since the Royal Commission’s final report at the start of the year, super funds have fought hard to restore members’ trust in the system. We’ve seen good funds responding proactively to the changing regulatory landscape, which has been pleasing. We expect to see an increase in fund mergers in 2020, but it’s important that regulatory responses don’t move us towards a one-size-fits-all approach, which could be detrimental to member outcomes.”

Members must look beyond raw returns

Everyone agrees that funds that aren’t delivering for members have no place in the super system. However, focusing purely on returns as a measure of a fund’s success ignores a range of factors, not least of which is the level of risk involved in generating that return.

As the chart below shows, there is a significant dispersion of risk and return outcomes among different funds. Looking at how balanced options compare over the past five years, there are some producing higher returns than the median option, but many are producing these higher returns by taking on a higher level of risk (measured as the standard deviation of returns).

Risk and return comparison – Balanced (5 years to 30 November 2019)

Risk and return quadrant - Balanced

Source: SuperRatings

When assessing investment performance over time, the top-left quadrant (higher return for lower risk) is what members should generally aim for. Similarly, the bottom-right quadrant (lower return for higher risk) represents the laggard funds. Over any given time period, there will always be funds that outperform and those that underperform.

Looking at past performance can be useful when picking the right fund, but it shouldn’t be the sole criteria. For one thing, past performance is no guarantee of future performance, but there are many factors members should take into account when assessing a super fund, including insurance, governance, member services, and of course fees.

Markets continued their upward trajectory in November. When you look at the returns across key asset classes over the last 12 months most asset classes have generated double digit returns. Growth assets such as equities and listed real assets generated over 20% for the year ending 30 November, while bonds generated high single digit to double digit returns. This has been a great outcome for investors and certainly well above Lonsec’s long-term expected returns for asset classes.

Part of what has fuelled these high returns, post markets getting the wobbles after the US yield curve inverted in August, can be attributed to markets pricing in the avoidance of a recession and the expectations of a potential recovery in growth. We have witnessed such ‘mini-cycles’ in the past, in 2013 and 2016, however what is different this time is that EPS growth is more muted and other factors which contributed to previous mini-cycles, such as the US or Chinese fiscal stimulus, are less likely to have an impact.

So what does this mean for markets? We think markets may experience a short-term upswing as the ‘mini-cycle’ plays out. We have therefore slightly adjusted our dynamic asset allocation tilts deploying some of the excess cash in our portfolios towards Australian equities. Our overall asset allocation continues to have a defensive skew with the objective of diversifying the portfolios by asset type and investment strategy. This positioning reflects our broader view that asset prices are stretched and that while some economic indicators have stabilised, we believe we are closer to the end of the cycle.

Super members searching for a ‘sustainable’ investment fund are exposed to the same challenges as those in more traditional funds with the sector delivering a wide range of performance outcomes and charging a range of fees, according to new research on the sector by superannuation research house SuperRatings.

The SuperRatings research reveals that the median performance of ‘sustainable’ investment funds is lower than the median performance of the SuperRatings SR50 Balanced (60-76) Index, comprised of traditional balanced super funds. Furthermore, the ‘sustainable’ funds have higher median fees. The combination of the two means a sizeable number of ‘sustainable’ funds produce sub-optimal returns at relatively high fee levels. ‘Sustainable’ funds include funds that select their investments based on environmental, social and governance (ESG) factors.

However, there are a number of ‘sustainable’ funds that outperform the market, while some also have lower fees than many Balanced options. The chart below reveals that the top quartile of sustainable funds charges a total fee of $519 or less per annum on a balance of $50,000, compared to the median SR50 Balanced (60-76) Index fee of $606. Looking at returns, the top quartile of ‘sustainable’ funds has delivered a 10-year return of 8.9% or more per annum, which is in line with the SR50 Balanced (60-76) Index.

Sustainable super fund fees and returns

Sustainable super fund fees and returns
Source: SuperRatings

The below table shows the top returning super funds that are classified as sustainable due to the fund’s incorporation of ESG and socially responsible investing criteria. HESTA’s Eco Pool balanced option has delivered the top return over 10 years of 11.1% per annum, which is considerably higher than the SR50 Balanced (60-76) Index return of 8.9% per annum.

Top performing sustainable super funds

Fund Total fee on
$50k balance
10-year return
(% p.a.)
HESTA – Eco Pool $670 11.1%
VicSuper FutureSaver – Socially Conscious Option $463 10.3%
AustralianSuper – Socially Aware $448 10.0%
WA Super Super Solutions Pers – Sustainable Future $573 9.5%
UniSuper Accum (1) – Sustainable Balanced $281 9.3%
Sustainable Balanced option median $662 8.5%
SR50 Balanced (60-76) Index median $606 8.9%

Returns over 10 years to 28 February 2019
Source: SuperRatings

There are a range of factors that must be taken into account when assessing the extent to which ESG factors affect a fund’s investment decisions, as well as the cost involved. For example, some funds may apply a simple screen on certain industries, while others may conduct more in-depth analysis on individual businesses, which may justify a higher fee. This makes it difficult to provide a definitive ranking of sustainable fund performance.

When considering sustainable alternatives, it is important to look at each individual fund’s mandate, their process for investing sustainably, and of course the industries and businesses they do and do not invest in,” said Mr Rappell.

“When we speak to financial advisers, they tell us that ESG factors are becoming more and more important for their clients. Advisers need the capability to examine and compare sustainable funds to ensure that the product is the best fit for their client both in terms of their risk and return preferences, as well as their social and environmental values.”

Super members have escaped a fifth straight month of negative returns as market volatility turned in their favour over January, helping to claw back losses suffered in late 2018.

The latest data from superannuation research house SuperRatings reveals major fund categories all enjoyed strong growth in the first month of the year. The median return for the Balanced option in January 2019 was 2.5 percent, returning to members more than half of the losses suffered over the prior four months.

Members in the median Growth option enjoyed gains of 3.2 percent for the month, while those in either the median domestic or international equities option had returns of 3.4 percent and 4.5 percent respectively. The effect across all options has been to improve monthly balances after four months of declines, a particularly welcome outcome for those members approaching retirement.

Interim results only. Median Balanced Option refers to ‘Balanced’ options with exposure to growth style assets of between 60% and 76%. Approximately 60% to 70% of Australians in our major funds are invested in their fund’s default investment option, which in most cases is the balanced investment option. Returns are net of investment fees, tax and implicit asset-based administration fees.

SuperRatings Executive Director Kirby Rappell believes the latest data is a reminder that it is long-term performance that matters for super members and they should not panic in response to a few months of negative performance.

“Volatility remains the dominant trend across markets at the moment”, said Mr Rappell. “However, this time volatility has delivered gains to super members and is a reminder not to panic in response to short-term market movements.”

“A number of factors worked in members’ favour throughout January, including efforts to diffuse the ticking time bomb of a trade war between the US and China. Markets also improved with the end of the longest US government shut down on record.”

Looking forward, super members are also likely to benefit from improved conditions in February to date. In particular, bank stocks have improved as the final report of the Royal Commission failed to deliver as much pain for the sector as many feared.

Growth in $100,000 invested over 10 years to 31 January 2019

Select index

SR50 Balanced (60-76) Index
SR50 Growth (77-90) Index
SR50 Australian Shares Index
SR50 International Shares Index
SR50 Cash Index

Source: SuperRatings

Interim results only

Source: SuperRatings

Interim results

The positive performance for super funds in January has helped to boost total balances over the ten-year period ending 31 January 2019, with $100,000 invested in the median Balanced option in January 2009 now worth $213,227. The median Growth option is worth $227,393 over the same period, while $100,000 invested in domestic and international shares ten-years ago is now worth $244,722 and $245,403 respectively. Meanwhile, $100,000 invested in the median Cash option ten years ago would only be worth $130,094 today.

Top performing super funds

Release ends

Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to “General Advice” (as defined in the Corporations Act 2001(Cth)) and based solely on consideration of the merits of the superannuation or pension financial product(s) alone, without taking into account the objectives, financial situation or particular needs (‘financial circumstances’) of any particular person. Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances, or should seek independent financial advice on its appropriateness.

If SuperRatings advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Product Disclosure Statement for each superannuation or pension financial product before making any decision about whether to acquire a financial product. SuperRatings’ research process relies upon the participation of the superannuation fund or product issuer(s). Should the superannuation fund or product issuer(s) no longer be an active participant in SuperRatings research process, SuperRatings reserves the right to withdraw the rating and document at any time and discontinue future coverage of the superannuation and pension financial product(s).

Copyright © 2019 SuperRatings Pty Ltd (ABN 95 100 192 283 AFSL No. 311880 (SuperRatings)).

This media release is subject to the copyright of SuperRatings. Except for the temporary copy held in a computer’s cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth.), no part of this media release may, in any form or by any means (electronic, mechanical, micro-copying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of SuperRatings. This media release may also contain third party supplied material that is subject to copyright. Any such material is the intellectual property of that third party or its content providers. The same restrictions applying above to SuperRatings copyrighted material, applies to such third party content.

 

Earlier this month, at his first public speech for 2019, RBA Governor Phil Lowe conceded the rate outlook is now “evenly balanced”, dropping the rate tightening bias present in RBA communications throughout 2018. In its latest forecasts contained in the Statement of Monetary Policy, the RBA has also revised lower its GDP and inflation forecasts.

So what has caused this change in outlook?

Weaker global outlook
Overall, global growth was strong in 2018 with falling unemployment and above-trend economic growth in the advanced economies. In Q4 2018, a few factors weighed on the growth outlook and the financial markets, including trade tensions between the US and its trading partners, slower growth in Europe and Asia, and political risks including Brexit and rising global populism. A greater-than-expected slowdown in China especially weighs on the outlook for Australia.

Stubbornly low inflation
With an improving domestic economy and tightening labour market, the RBA had been expecting inflation to move higher to its target band of 2–3%. That has not eventuated, and underlying inflation has been around 1.75% for some time. While there has been some pickup in wages growth, it remains subdued. In addition, rent inflation and the cost of new dwelling construction have remained soft given a weaker housing market.

Falling dwelling prices and a constrained household sector
Despite an improving labour market and falling unemployment rate, Australian households remain under considerable pressure, and household consumption growth has been weaker than expected. Factors weighing on household spending include subdued wages growth, rising cost of living (utility prices and mortgage interest rates), the high rate of part-time employment and underemployment, high household indebtedness, falling consumer sentiment in recent months, and also the declining wealth effects from falling house prices and weaker equities markets.

Tighter credit conditions
While domestic financial conditions remain accommodative overall, credit conditions for housing and small business have been tighter. Banks are facing higher funding costs as well as tightening lending standards as a result of the Royal Commission.

What’s ahead?

This change in rhetoric has seen financial markets pricing in a 60% chance of a rate cut by 2019, but in our opinion the RBA is likely to remain in wait-and-see mode. While it was forced to revise down its growth forecast, GDP is still expected to grow by 2.5% in 2018-19 and 2.75% in 2019-20, which is around the long-term trend level, while the unemployment rate is expected to stabilise around 5.0%. In addition to inflation, the RBA is likely to watch:

The business sector
As mining investment and exports return to more normal levels, non-mining business sector is expected to drive growth forward. However, business conditions and confidence have been trending lower, as measured in the NAB Business Survey. There are a few headwinds facing Australian businesses, including policy uncertainties associated with the federal election, slowing growth in China, tighter lending standards, falling building approvals and peaking mining exports. Retail conditions especially have been weak for quite some time—another reflection of a constrained household sector. The upcoming federal election is likely to contain business friendly policies to stimulate the economy and investment, while large infrastructure spending is also expected to drive investment growth in the medium term.

Household sector
The household sector remains constrained. As income growth has been weak, households have been saving less of their income to maintain consumption. Wages growth is therefore needed to maintain sustained consumption growth. The RBA will watch developments in the labour market closely. Leading indicators including the NAB survey employment index and SEEK job ads have pointed to a peak in employment growth. A marked slowdown in the labour market could see the RBA start cutting rates.

Dwelling investment
As the apartment building boom passes its peak, the fall in dwelling investment will be a drag on the economy and will likely see job losses in the construction sector and related industries. The RBA forecasts dwelling construction to decline by a cumulative 10% over the next two years. Given falling house prices, new approvals for houses and units are likely to be slow to come online. While infrastructure projects can absorb some construction employment, the overall drag on the economy would be significant over the near term.

Exports
The lower AUD will likely support export growth. While 2019 export growth will be driven by the completion of several large-scale LNG projects, once they reach full capacity their contribution to overall economic growth will be reduced. Rural exports this year are also expected to be lower due in large part to the severe drought.

The financial services industry was collectively holding its breath on Monday as Commissioner Hayne delivered the final report into misconduct and the 76 recommendations for how the system can be redeemed. Already chastened by the interim report, and already responding to the increased public awareness, there was a palpable sense of standing outside the headmaster’s office waiting for the punishment to be meted out.

But it was a case of ‘sell the rumour, buy the fact’ as the market had clearly factored in more severe measures, particularly with respect to the vertical integration model. The share prices of the major banks and financial services institutions rose in the wake of the report’s release, but the sector as a whole took a beating through 2018, weighing down the index and contributing in part to the relative underperformance of Australian equities. Investors were reminded of the importance of a sustainable financial services industry given its predominant weighting in the ASX.

ASX index performance versus financials


Source: FE

While the Royal Commission has played an important role in highlighting specific instances of gross misconduct and brought to the public’s attention some of the key regulatory challenges facing the industry, the seeds of change had been laid much earlier. The shift in behaviour and the heightened focus on risk and the management of conflicts has already resulted in three of the major banks largely exiting the funds management business, which has kept the research team, and the fund managers we interact with, busy for almost two years. The Royal Commission may act as an important catalyst for further cultural change, but already self-interest and common sense have prevailed in setting the major institutions on the right course.

On a sector specific basis, Lonsec will be having further discussions in its upcoming income sector reviews with funds impacted – directly or indirectly – by the ban on trailing commissions and the heightened focus on responsible lending.

 

The Royal Commission report will likely be seen as a key fork in the road for the superannuation industry. It highlights a number of issues, many of which have been known to the industry for some time, but more importantly it creates a clear imperative for industry players to take meaningful action to address them. The report and its recommendations cover both historical and structural issues that have been endemic to the industry, such as grandfathered commissions and duplicate accounts, but they also raise potential challenges that if not properly addressed could pose significant risks to sustainability in the future.

The solutions may involve a degree of complexity, and certainly they will not be implemented overnight, but they will be necessary to the future health of the system. Australia’s retirement industry is growing rapidly, and this is bringing greater sophistication but also inevitably additional layers of complexity that is not always easy for funds, members and regulators to navigate. Maintaining as much simplicity as possible while allowing members to benefit from greater innovation and a more dynamic retirement sector is the key challenge. Progress is being made but more needs to be done.

In particular we expect to see structural changes within many retail fund providers as they evolve their models for the future. MySuper product quality filters are expected to be lifted, which should help provide a more effective safety net for disengaged members. At the same time, with the changes in trustee expectations, we will undoubtedly see continued rationalisation in the number of providers in the market through fund mergers.

For consumers, the Royal Commission has highlighted the cost of not being engaged with your super. For many Australians, failing to engage and check in on their retirement savings may already have had an impact on their future retirement outcomes, whether through below-average returns, high fees, duplicate accounts, or inappropriate insurance. For every super member, getting engaged and taking an interest in how your retirement savings are managed is the best thing you can do. Ultimately, the success of superannuation depends on members having a stake in their own retirement.

On the financial advice side, the Royal Commission is proposing some important structural changes that should help create a better deal for advice clients. Combined with new education standards for advisers there should be an ongoing shift in quality, but a key challenge remains the high cost of providing advice, which is ultimately passed on to clients. Will financial advice become a luxury that only the few can afford, or can the industry evolve so that all those exposed to capital markets through their super can access affordable advice? This is a critical question and one that will require a balanced approach to ensure that members can get the certainty and comfort they need in retirement.

With a federal election due this year, and an early budget pegged for early April, the path to implementing these changes should become increasingly clear. The Royal Commission has revealed the deep desire Australians have to fix the system, but it is up to us to work through the changes. We have an opportunity to make real and lasting improvements that will make super more sustainable and hopefully create a better value proposition for members. But we cannot ignore the complexity of the task ahead. Success will mean balancing a number of competing goals – including cost, sophistication, choice and simplicity – while ensuring members understand what they need to do to get the most value from their super.

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services industry is mandatory reading for all super funds and their Trustees. It provides clear guidelines about the sale of financial advice and the purpose of MySuper products, as well as the simplification of insurance and more stringent benchmarking of service providers. This will result in a sweeping focus across organisations to ensure that strategic plans and KPIs are appropriately aligned and managed. The report clearly reinforces organisational responsibility as front and centre in the solution.

The impact of the Royal Commission for many in the industry will be lasting. The key takeout for many industry participants should be that most providers face challenges in some shape or form. We believe the true test of an organisation will be; if another commission (hypothetically) were to be held in 5 or 10 years’ time, will providers have had the foresight to seek out the issues of tomorrow and solve them, or will they be doomed to repeat the mistakes of the past.

We have identified three key areas highlighted in the report, which we believe will substantially shape the industry going forward.

1. Greater accountability for Trustees

With further consolidation across the industry inevitable, Trustees will need to have the processes in place to appropriately consider potential merger opportunities and ensure they are making decisions from a position of “best interests” and not “power/control”, or face being held accountable.

Further to this, the issue of appropriately assessing service providers, whether they are related to the entity or not, and holding them to account will also be vital in delivering optimal member outcomes. This will require ongoing uplift and oversight of service providers, to ensure that value is being delivered at all times.

For those Trustees that fail to adhere to their best interest duties, the Commissioner recommends the application of civil penalties. The challenge for funds, and their Trustees, will be on how to structure appropriate KPIs and remuneration structures, especially at Board and senior management levels, and whether they will have the capacity to deliver services with reasonable care and skill.

2. The challenges of assigning one default account

The report highlights the strong need for the industry to converge to its true membership base. SuperRatings remains supportive of one default account being created upon entry into the workforce, which we also highlighted in our submission to the Productivity Commission’s review. However, this is a deceptively complex challenge.

The report does not explicitly state what ‘machinery’ would be developed to ‘staple’ a person to a single default account. We believe there are three main approaches that could eventuate and note that each is not without substantial administrative and implementation challenges. Thus, it is not surprising that despite broad agreement across the industry, this initiative is yet to be executed. We envisage that an:

1. Employee could be defaulted into a fund attached to their first employer, with that becoming their superannuation fund for life. This could result in significant concentration of default flows to a handful of providers;

2. Employee could elect a superannuation fund when they apply for a TFN. Employees at this age may lack the skills to make an appropriate decision, so advice or guidance would be paramount;

3. Employee could continue to be defaulted into a fund attached to their employer, but a rollover of their existing accumulation account to the new super fund would need to occur each time their employment changed. This would increase the administration burden borne by superannuation funds but could expose employees to different superannuation providers throughout their working life.

Options 1 and 3 would still see the corporate play a role in determining a default super fund when arguably they don’t want the burden. Option 2 removes corporates from the decision-making process, but this option could spell the end of corporate super as we know it, and with it, the benefit of tailored solutions which are in the members’ best interest.

3. Key implications for Corporates

The report recommends ‘no treating’ of employers, this is effectively the corporate version of no hawking.  As such, funds will need to examine how to appropriately attract and service employers.

If corporates continue to nominate a default fund, the selection of this fund will need to be based on a robust framework. In lieu of set guidelines from the government, an assessment in-line with the member outcomes framework would be a potential minimum standard. We remain focused on the importance of reviewing investments, fees, advice, administration and governance arrangements as the pillars of a strong assessment of any fund.

The pricing models in this area should also give corporates pause for thought.  Reflecting on the commentary about the charging models for advice and mortgage broking, a range of pricing structures also exist in the corporate tender management space. Evidently, we believe best practice pricing in this space is an up-front fixed fee model. While this is a cost for corporates, we believe it brings significant long-term benefits for their employees that outweighs the initial cost.

Final thoughts

While the report may have lacked the theatre of the hearings, it has been clearly designed to address key issues identified by the Commission. As noted at the outset, we believe the key takeout for many industry participants should be that most providers face challenges in some shape or form. What providers do about them is the true test.

We are seeing providers act in advance of legislative change wherever practical, which is pleasing to observe. However, the path ahead for some will be more challenging than others. As historical issues are addressed, it will hopefully also provide an industry less divided across historical battlelines. Given the path forward in advice remains one of the most tricky to foresee, we hope that this will provide a key opportunity for these sectors to more effectively work together.

Super members suffered sharp declines in December 2018, pushing many into negative territory for the year, with the likelihood of further losses over coming months as market volatility and political risk continue to challenge the outlook.

The latest data from superannuation research house SuperRatings, reveals major fund categories all suffered declines in December 2018, contributing to an already horror fourth quarter. The median return for the Balanced option in December was -1.2 percent, contributing to a loss of nearly 5 percent for the quarter (-4.7%) but keeping members just above water for the year, with a gain of 0.6 percent.


Interim results only. Median Balanced Option refers to ‘Balanced’ options with exposure to growth style assets of between 60% and 76%. Approximately 60% to 70% of Australians in our major funds are invested in their fund’s default investment option, which in most cases is the balanced investment option. Returns are net of investment fees, tax and implicit asset-based administration fees.

Members in the median Growth option or exposed solely to domestic or international equities were not as fortunate. Growth option members suffered a -1.7 percent decline in December and -0.3 percent for the year, as heavy losses in the fourth quarter clawed back earlier gains. Members in the median Australian Shares option experienced declines of -0.9 percent in December and -3.4 percent for the year, while the median International Shares option recorded a loss of -3.9 percent for December and -1.7 percent for the year.

SuperRatings Executive Director Kirby Rappell believes the latest data will be a cause for concern for many super members but argues it’s important to keep a long-term perspective.  “For many super members 2018 will be remembered as a turning point”, said Mr Rappell. “Volatility is likely to be a feature of markets over the coming months and members can expect ongoing fluctuation in returns”. “However, it’s important to keep a long-term perspective and recognise that super returns have been overwhelmingly positive over the last decade.”

Despite the declines, super members remain well ahead over a ten-year period, with $100,000 invested in the median Balanced option in December 2008 now worth $204,264, while the median Growth option is worth $215,051 over the same period. Those invested in domestic and international shares have performed even better over the last ten years, despite a more volatile 2018 with $100,000 invested in the median Australian Shares option in 2008 now worth $227,120 and the median International Shares option rising to $233,166 over the same period. Meanwhile, $100,000 invested in the median Cash option ten years ago would only be worth $130,306.

Growth in $100,000 invested over 10 years to 31 December 2018

As we enter a more challenging investment environment, the importance of reviewing your superannuation fund to ensure it is in line with your retirement objectives is paramount.

Release ends

Synopsis of SuperRatings’ views regarding the Productivity Commission’s final report Superannuation: Assessing Efficiency and Competitiveness:

SuperRatings supported the need for a review of the current system and we engaged with the Productivity Commission by providing data and insights, including a formal submission regarding the draft report at that time.

Our submission focused on areas where we foresee implementation issues that could potentially present challenges. As a general principle, we support initiatives that:

  • ensure unintended multiple accounts are consolidated;
  • make it easier for members to engage with their superannuation;
  • provide simple, easy to use tools and information to help inform members;
  • improve member outcomes;
  • require funds to demonstrate how they are providing quality member outcomes; and
  • improve MySuper requirements.

Our responses to the key recommendations and findings were as follows…

Recommendation 1: Defaulting only once for new workforce entrants

  • SuperRatings supports the recommendation of creating a default account only for members who are new to the workforce or do not already have a superannuation account and do not nominate a fund of their own.
  • We note that the proliferation of member accounts has been the catalyst for a number of issues, which persist within the superannuation system such as balance erosion due to multiple insurance policies and account keeping fees.
  • We agree that a centralised system is needed to facilitate this change. A centralised system will remove some of the administrative burden for members seeking to consolidate their superannuation accounts and improve efficiency of the process.

Recommendation 2 and 3: ‘Best in show’ shortlist for new members and independent expert panel for shortlist selection

  • We do not believe that the overall approach covered by recommendations 2 and 3 is workable in practice.
  • One of the key considerations is the role of government in directing the superannuation system. We believe that there would be clear risks involved if the Australian Government, either directly or indirectly, were seen to be endorsing specific products for selection by consumers.
  • SuperRatings has more than fifteen years of experience as one of Australia’s leading providers of information about superannuation funds to fund members, employers and trustees. During this time, we have gradually evolved a sophisticated approach to rating and comparing a range of superannuation products.
  • As a result, we also have an appreciation of the practical challenges involved in creating lists of rated products and explaining our ratings to consumers, product providers and other interested parties.
  • The “Best in Show” shortlist recommendation also has unintended consequences for employer-sponsored corporate funds. We assume that the intention of the Productivity Commission’s recommendation is to publish a list of funds that could be joined by any new employee in any occupation or industry, i.e. those classified as “Public Offer” funds.
  • However, based on SuperRatings data, we note that in the past some of the best performing funds have been “Limited Public Offer” funds.

Recommendation 4: Elevated MySuper and Choice outcomes tests

  • SuperRatings support the Productivity Commission’s recommendations for strengthening the MySuper authorisation and have long held the view that the emphasis placed on size alone should not be the key determinant when assessing the viability of a fund.
  • Our in-house analysis suggests there are examples of good small funds delivering quality member outcomes in a cost controlled manner, helped in part by their ability to know and understand their demographic.
  • Conversely, there are examples of larger funds for whom demonstrating quality member outcomes may not be as easily attainable despite the potential size benefits.

Recommendation 5: Cleaning up unintended multiple accounts

  • We are supportive of legislation to ensure that unintended accounts are sent to the ATO once they meet a definition of ‘lost’. Policies that aim to reunite members with any existing superannuation accounts are a positive step towards reaching the true level of membership across the industry.
  • Whilst we support auto-consolidation of the aforementioned accounts by the ATO, a framework addressing trustee reporting requirements is essential to ensure that any unnecessary processing delays are avoided and that funds are allocated into the member’s most appropriate account.
  • In relation to the transfer of accounts from Eligible Rollover Funds (ERFs) to the ATO and prohibiting further accounts from being sent to ERFs, we believe further information would be useful regarding investment of ATO-held super, fees and charges for ATO-held super and governance of ATO-held super.

Finding 3.7: Association between fees and returns

  • SuperRatings does not ascribe to the view that higher fees are clearly associated with lower net returns over the long term. Superannuation products levy a variety of fees and charges, some of which may ultimately add to retirement balances.
  • For a number of providers with a high investment fee, it can be attributed to allocations to higher cost asset classes, which have been a key reason for their consistently strong performance outcomes for members.

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