Retail funds fall short by $75b

Industry Super Network (ISN) says weak performance by super funds owned by banks and wealth managers cost investors about $75 billion over the past 15 years. Using Australian Prudential Regulation Authority (APRA) figures, ISN found for‑profit (retail) fund returns lagged peers by around 2% between 1996 and 2011, and it argues that if retail funds had matched not‑for‑profit returns the overall pool of retirement savings would be $75 billion larger.

According to the APRA‑based research cited by ISN, retail super funds returned an average of 3.84% per year from 1996 to 2011. Not‑for‑profit providers (industry, public sector and in‑house corporate funds) returned more than 5.5% on average, with public sector funds posting the highest average at 6.47%.

In the article, ‘retail’ funds refers to for‑profit super funds often owned by banks and wealth management firms. ‘Not‑for‑profit’ providers include industry funds, public sector funds and in‑house corporate funds — these were the groups that returned higher average annual returns in the period covered by the research.

The article shows there’s debate. The Productivity Commission has warned against relying solely on past performance when choosing default funds, and regulators have long held the view that historical returns don’t guarantee future results. ISN’s chief economist, Sacha Vidler, says there is a ‘statistically significant’ link between past and future performance, but the Financial Services Council counters that ISN’s analysis is misleading because it uses whole‑fund results rather than individual investment options (like balanced, conservative or growth). That suggests investors should look at past performance alongside fund options, fees, member profile and risk settings.

The Financial Services Council, which represents retail funds, criticised ISN’s analysis because it compares whole‑fund performance rather than looking at individual investment options (such as balanced, conservative or growth options). The council also notes retail fund members tend to be older and more conservative, which can affect average returns.

The Productivity Commission has called for more competition among funds that serve workers on industrial awards who don’t explicitly choose a fund, and funds owned by big banks are pushing for more competition in the default market. The ISN report could influence that debate: if regulators or government accept ISN’s findings, it may complicate retail funds’ efforts to win a bigger share of the default market. The article highlights this is an active policy discussion rather than a settled outcome.

The return figures cited in the article are drawn from Australian Prudential Regulation Authority (APRA) data and the research published by Industry Super Network. The article uses those APRA‑based figures to compare average annual returns for retail and not‑for‑profit funds between 1996 and 2011.

Yes — the article emphasises that the roughly 2% per year gap between retail and not‑for‑profit returns is meaningful. ISN’s analysis says that if retail funds had matched the higher not‑for‑profit returns, the total pool of retirement savings would now be about $75 billion larger. As ISN’s chief economist Sacha Vidler noted, that extra 2% would have translated into significantly more capital invested for Australians’ benefit.