In a year defined by the global pandemic and the locking down of economies, the superannuation system faced arguably one of its toughest test in its 29-year history.

Now, as super funds finalise their reporting for December 2020, the strength of superannuation’s comeback is clear. Despite the market turmoil in the first half of the year, Australia’s top super funds have posted some remarkable results.

Long-term returns have also held up well, evidenced by the 10-year performance rankings, demonstrating the quality of funds available to members.

According to data from leading research house SuperRatings, Suncorp was the top performing fund over the 2020 calendar year, with the Suncorp Brighter Super Pers – Suncorp Multi-Manager Growth Fund returning 9.6%. This was followed by Australian Ethical and Vision SS, whose balanced options returned 8.0% and 6.2% respectively.

Top 20 balanced options over 12 months

Source: SuperRatings

Moving out to 10 years, the top performers were UniSuper, whose balanced option has returned 9.0% p.a. over the last decade, followed closely by AustralianSuper and Cbus.

Top 20 balanced options over 10 years

Source: SuperRatings

Spotlight on risk and return in wake of COVID-19

It is important to consider not only the return that an option delivers but also the level of risk it takes on to achieve that return. A rough way to examine this is the variability in returns over time. Growth assets like shares may return more on average than traditionally defensive assets like fixed income, but this comes with larger ups and downs.

The table below shows the top 20 funds ranked according to their volatility-adjusted return, which measures how much members are being rewarded for taking on the ups and downs.

QSuper’s balanced option return of 7.9% p.a. over the past seven years is below some of its peers, but it has done this with a smoother ride along the way, meaning it has delivered the best return given the level of volatility involved.

Top 20 balanced options over 7 years ranked by risk and return

Option name Rolling 7-year return (% p.a.)
QSuper – Balanced 7.9%
BUSSQ Premium Choice – Balanced Growth 7.8%
Prime Super – MySuper 7.9%
Cbus – Growth (Cbus MySuper) 8.5%
CareSuper – Balanced 7.9%
MTAA Super – My AutoSuper 8.0%
Catholic Super – Balanced (MySuper) 7.7%
VicSuper FutureSaver – Growth (MySuper) Option 8.0%
Mercy Super – MySuper Balanced 7.7%
AustralianSuper – Balanced 8.8%
Aware Super (previously First State Super) – Growth 7.8%
Media Super – Balanced 7.6%
CSC PSSap – MySuper Balanced 7.1%
Sunsuper for Life – Balanced 8.0%
Hostplus – Balanced 8.4%
Vision SS – Balanced Growth 7.9%
HESTA – Balanced Growth 7.7%
Club Plus Super – MySuper 7.3%
Equip MyFuture – Balanced Growth 7.7%
Local Government Super Accum – Balanced Growth 7.3%

Source: SuperRatings

“What the calendar year figures hide is the rollercoaster movements members experienced as the market sold off back in March 2020 and then rapidly recovered,” said SuperRatings Executive Director Kirby Rappell.

“As members accumulate wealth over time, market movements will have a bigger impact on their account balance in dollar terms. This is a challenge for funds and members as the average super balance rises over $100,000, with the need for education and support paramount.”

While it is important to acknowledge those funds that have outperformed over 2020, members should bear in mind that long-term performance is what really counts.

“Overall, funds have done an excellent job of managing risks through a tumultuous period,” said Mr Rappell. “Super is a long-term game, so it’s pleasing to see long-term returns remain healthy and ahead of their CPI+ targets.”

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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 © 2021 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.

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Super members have every reason to be optimistic about 2020, but when it comes to a repeat of 2019’s double-digit returns, it would be wise to temper expectations.

According to estimates from leading research house SuperRatings, 2019 was the best year for superannuation funds since 2013, with the median balanced option returning 13.8%. Despite a selloff in Australian shares in December, funds entered the new year in a strong position as markets shrugged off a string of negative economic news and rising geopolitical tension.

However, funds are already battling the new normal of lower yields and returns, which will make a repeat of 2019’s results unlikely in 2020.

Looking back over 2019, the median balanced accumulation option returned 13.8% over the year to the end of December and has returned 7.7% p.a. over the past decade. December saw an estimated fall of 0.9%, ending an otherwise stellar year for Australian shares, on a sour note. Markets were driven predominately by the health care and materials sectors, while the financial services sector, despite delivering a positive result, remains largely beaten down, thanks mostly to the major banks.

The median growth option returned an estimated -1.1% in December and 16.0% over the year, while the capital stable option returned an estimated -1.0% and 7.0% respectively.

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

  1 mth 1 yr 3 yrs 5 yrs 7 yrs 10 yrs
SR50 Growth (77-90) Index -1.1% 16.0% 9.0% 8.2% 10.0% 8.2%
SR50 Balanced (60-76) Index -0.9% 13.8% 8.1% 7.4% 8.8% 7.7%
SR50 Capital Stable (20-40) Index -1.0% 7.0% 4.7% 4.5% 5.2% 5.4%

Source: SuperRatings

Pensions performed similarly well in 2019, with the median balanced option returning an estimated 14.9% over 2019, compared to 18.2% for the growth option and 8.0% for the capital stable option.

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

  1 mth 1 yr 3 yrs 5 yrs 7 yrs 10 yrs
SRP50 Growth (77-90) Index -1.2% 18.2% 9.9% 9.3% 11.1% 9.1%
SRP50 Balanced (60-76) Index -1.0% 14.9% 8.8% 8.0% 9.7% 8.5%
SRP50 Capital Stable (20-40) Index -1.0% 8.0% 5.4% 5.2% 5.8% 6.1%

Source: SuperRatings

“We’re anticipating a solid year for super in 2020, but the key challenge for funds will be the low return environment,” said SuperRatings Executive Director Kirby Rappell.

“Even with the possibility of a pickup in economic growth, yields are extremely low and it’s getting harder to find opportunities in the market. Company earnings growth is slowing, and Australian consumers are under pressure, so fundamentally it will be more challenging than 2019. That doesn’t mean it will be a bad year, but super members should not expect to bank another 13 per cent.”

Super’s long-term growth story still a winner

As the chart below shows, 2019’s double-digit return compares favourably to recent years and is significantly higher than the average return (6.4% over the past 20 years). Based on SuperRatings’ estimate of 13.8%, 2019 would represent the highest return since 2013 and the fourth-highest over the past two decades.

Median balanced option calendar year returns 2000-2019

* Estimate

Source: SuperRatings

Following the volatility of 2018, super funds saw steady growth over 2019 with only three down months during the year, with the largest fall in the median balanced option estimated to be -0.9% in December.

The main drivers of performance typically come from equities, of which Australian shares generally make up the greatest proportion. As the chart below shows, the Australian share market delivered a return of 18.4%, while international shares delivered 25.4% (unhedged) and 25.8% (40% hedged in Australian dollars). Meanwhile, listed property returned 14.2%, fixed interest – another major asset class for funds – returned 4.4%, and cash returned 1.5%. Another important asset class is Alternatives (including private equity), although market-based measures of performance are harder to determine as they are offered within diversified portfolios rather than standalone options.

Asset class returns in 2019

Returns based on the following indices: S&P/ASX 200 Index, MSCI World ex-Australia Index (USD), S&P/ASX 300 A-REIT Index (Industry), Vanguard Australian Fixed Interest Index ETF, Bloomberg AusBond Bank Bill Index (AUD). Hedging based on AUD/USD exchange rate of 0.7058.

Since the GFC, funds have ridden market turbulence through 2011, 2015 and 2018 to build significant wealth for members. Looking back over the past 15 years to 2005 (before the GFC hit), the median balanced option with a starting balance of $100,000 would have grown to an estimated $259,340 by the end of 2019 (a return of 159.3%). Similarly, the median growth fund would have risen to an estimated $264,208 (a return of 164.2%).

Growth in $100,000 invested over 15 years to 31 December 2019

Source: SuperRatings

Expect further fund consolidation in 2020

Over the course of 2019 there was a number of high-profile mergers, and 2020 is expected to see more funds come together to achieve greater scale. Mergers have typically been based on geographic proximity, similar industry sectors and strategic fits, with funds seeking merger partners that are strong in areas in which they may be weaker.

A key driver of mergers will be the sustainability of operating expenses, which as the chart below shows, is a challenge for some funds across all size categories. Though, smaller funds are more likely to have a high cost per member (CPM) and management expense ratio (MER), which measure the operational costs of the fund relative to its size.

Sustainability of cost structures

Source: SuperRatings

“With the increased regulatory scrutiny on the sector, funds are focused on the challenge of increasing scale and driving down fees,” said Mr Rappell. “It’s pleasing to see that there’s a clear focus among providers on their plans to adapt to the changing landscape, which should support continued uplift in member outcomes.”

However, there remains a number of providers who are struggling to deliver sufficient value for money and the industry’s ability to address this is critical. APRA released its MySuper Heatmaps in December 2019 which highlight laggards based on investment returns, fees and sustainability metrics and has emphasised a tougher approach going forward. APRA also now has stronger powers to force underperforming funds to merge, which is likely to further drive consolidation across the industry.

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We welcome media enquiries regarding our research or information held in our database. We are also able to provide commentary and customised tables or charts for your use.

For more information contact:

Kirby Rappell
Executive Director
Tel: 1300 826 395
Mob: +61 408 250 725
Kirby.Rappell@superratings.com.au

A combination of factors has created fertile ground for market volatility, resulting in a bumpy ride for super members, who have experienced six negative monthly returns over the past year.

According to SuperRatings, the median balanced option return for August was an estimated -0.5%, with the negative result driven by a fall in Australian and international shares. The median growth option, which has a higher exposure to growth assets like shares, fared worse, returning an estimated -0.9%.

In contrast, the median capital stable option, which includes a higher allocation to bonds and other defensive assets, performed more favourably with an estimated return of 0.3% (see table below).

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

1 month 1 year 3 years 5 years 7 years 10 years
SR50 Growth (77-90) Index -0.9% 5.2% 8.8% 8.0% 10.2% 8.5%
SR50 Balanced (60-76) Index -0.5% 5.3% 8.0% 7.5% 9.2% 8.0%
SR50 Capital Stable (20-40) Index 0.3% 5.3% 4.8% 4.8% 5.4% 5.7%

Source: SuperRatings

Investors were caught off guard in August as trade negotiations between the US and China broke down, while a range of geopolitical and market risks, including further signs of a slowing global economy, added to uncertainty.

In Australia, a disappointing GDP result for the June quarter revealed a domestic economy in a more fragile state than previously acknowledged. Action from the Reserve Bank to lower interest rates is expected to assist in stabilising markets but could be detrimental for savers and retirees who rely on interest income.

Pension products shared a similar fate in August, with the balanced pension option returning an estimated -0.6% over the month while the growth pension option returned an estimated -1.0% and the capital stable pension option was mostly flat with an estimated return of 0.3%. Long-term returns are still holding up well, with the median balanced option for accumulation members delivering 9.2% p.a. over the past seven years (in excess of the typical CPI + 3.0% target) and the median balanced pension option returning 10.2% p.a.

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

1 month 1 year 3 years 5 years 7 years 10 years
SRP50 Growth (77-90) Index -1.0% 5.9% 9.9% 9.2% 11.5% 9.4%
SRP50 Balanced (60-76) Index -0.6% 6.2% 8.7% 8.0% 10.2% 8.8%
SRP50 Capital Stable (20-40) Index 0.3% 6.2% 5.5% 5.5% 6.3% 6.4%

Source: SuperRatings

“There will always be negative months for super members, but the timing of negative returns can have a real impact on those entering the retirement phase,” said SuperRatings Executive Director Kirby Rappell.

“For members shifting their super savings to a pension product, a number of down months in relatively quick succession will mean they begin drawing down on a smaller pool of savings than they might have anticipated. As members get closer to retirement, it’s important that they review their risk tolerance to make sure they can retire even if the market takes a turn for the worse.”

As the chart below shows, down months in the latter part of 2018 took their toll on pension balances, although they were able to recover through 2019 to finish above their starting value by the end of August 2019.

Pension balance over 12 months to end August 2019*

Pension balance over 12 months to end August 2019
Source: SuperRatings
*Assumes a starting balance of $250,000 at the end of August 2018 and annual 5% drawdown applied monthly.

Comparing balanced and capital stable option performance shows that the balanced option suffered a greater drop but was able to bounce back relatively quickly. A starting balance of $250,000 fell to $232,951 over the four months to December 2018, before recovering to $252,091 at the end of August 2019.

In contrast, the capital stable option was able to better withstand the market fall, with a starting balance of $250,000 dropping to only $241,746 in December before rising back to $252,201.

While both performed similarly over the full 12-month period, a member retiring at December 2018 could have been over $8,500 worse off if they were in a balanced option compared to someone in a capital stable option. While a capital stable option is not expected to perform as well over longer periods, it will provide a smoother ride and may be an appropriate choice for those nearing retirement.

“Super fund returns have generally held up well under challenging conditions, but there’s no doubt this has been a challenging year for those entering retirement,” said Mr Rappell.

“Under these market conditions, timing plays a bigger role in determining your retirement outcome. At the same time interest rates are at record lows and moving lower, so the income generated for retirees and savers is less, particularly if someone is relying on interest from a bank account. In the current low rate and low return environment, it’s harder for retirees to generate capital growth and income.”

A world-beating performance from Australian shares has been overshadowed by the re-emergence of geopolitical uncertainty and a wave of risk aversion in global markets, leading to softer performance for super funds in the final stretch of the financial year.

According to estimates from leading superannuation research house SuperRatings, the typical balanced option return was -0.7% in May as funds were dragged down by falls in international shares triggered by the re-emergence of the US-China trade conflict and uncertainty surrounding central bank policy.

The bright side has been the resilience of Australian shares and property, both of which saw a brief boost from the Coalition’s surprise election win, but this was not enough to save super funds from a month of negative performance.

Markets have since recovered following May’s weakness, but members should not expect a bumper end to the financial year. The year-to-date return is sitting at 5.1% for the median balanced option, which is below the 8.5% per annum return achieved over the past ten years.

Estimated median Balanced option returns to 31 May 2019

Period Accumulation returns Pension
returns
Month of May 2019 -0.7% -0.7%
Financial year return to 31 May 2019 5.1% 5.8%
Rolling 1-year return to 31 May 2019 4.8% 7.3%
Rolling 3-year return to 31 May 2019 6.8% 8.1%
Rolling 5-year return to 31 May 2019 6.6% 7.6%
Rolling 7-year return to 31 May 2019 8.7% 10.5%
Rolling 10-year return to 31 May 2019 8.5% 9.7%
Rolling 15-year return to 31 May 2019 7.5% 8.1%
Rolling 20-year return to 31 May 2019 6.8%

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, which includes higher weightings to growth assets like Australian and overseas shares, suffered a larger fall of 1.2% in May, while the median International Shares option fell 4.0% and the median Australian Shares option held firm, returning 1.4%.

“It’s been a disappointing end to the financial year for super, but long-term performance remains robust,” said SuperRatings Executive Director Kirby Rappell. “The median balanced option return over the past 10 years is around 8.5%, indicating that super has delivered solid returns even in a low interest rate environment.”

Downside risks to the Australian economy, including weak inflation, falling home prices, and tighter credit conditions are taking their toll on consumer confidence, while the geopolitical risks in the form of US-China trade negotiations have also contributed to market volatility.

SuperRatings Index return estimates to 31 May 2019


Source: SuperRatings

However, the Australian market has held up reasonably well over the financial year to date, with the S&P/ASX 200 Index returning 7.6% so far to the end of May, outperforming global share performance of 6.3% measured by the MSCI World Ex-Australia Index. Listed property has been the leading asset class so far this financial year, with the S&P/ASX 200 A-REIT Index returning 14.5%. Both property and shares saw a modest boost in May with the negative gearing debate now effectively put to bed following the federal election.

“Labor’s negative gearing proposals were thought to favour developers by limiting tax concessions to new stock, but so far the improvement in sentiment has outweighed any negative impact, which may give some super funds a temporary boost to their property portfolios,” said Mr Rappell.

Long-term super performance steady

The negative performance for super funds in May has been reflected in a slight fall in the Balanced and Growth option indices for the month but long-term performance remains strong. According to SuperRatings’ data, $100,000 invested in the median Balanced option in May 2009 is estimated to have reached an accumulated $217,391 today.

The median Growth option is estimated to be worth $230,873 over the same period, while $100,000 invested in domestic and international shares ten-years ago is now worth $244,382 and $258,181 respectively. In contrast, $100,000 invested in the median Cash option ten years ago would only be worth $129,748.

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


Source: SuperRatings

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Important information: Any express or implied rating or advice is limited to general advice, it doesn’t consider any personal needs, goals or objectives.  Before making any decision about financial products, consider whether it is personally appropriate for you in light of your personal circumstances. Obtain and consider the Product Disclosure Statement for each financial product and seek professional personal advice before making any decisions regarding a financial product.