THE weak performance of super funds owned by banks and wealth management giants has cost investors $75 billion in the past 15 years, says a new report that ups the ante in the union-linked funds' challenge to further deregulation of super.
As banks eye the $1.4 trillion super pool as a source of future profits, research by Industry Super Network says for-profit fund returns lagged their peers by 2 per cent between 1996 and 2011.
The research, published today, also casts doubt on regulators' long-held view that historical performance cannot predict future returns.
If accepted by the government, this finding could frustrate retail funds' efforts to grab a bigger share of the lucrative market managing the billions in retirement savings of workers on industrial awards.
Using figures from the Australian Prudential Regulation Authority, the research found retail funds returned an average of 3.84 per cent a year between 1996 and 2011. This was more than inflation but less than the 4.01 per cent term deposit rate.
Not-for-profit providers - industry funds, public sector funds and in-house corporate funds - returned more than 5.5 per cent. Public sector funds posted the best returns, 6.47 per cent. Had the retail sector matched the not-for-profit funds, the report said, the pool of retirement savings would be $75 billion larger.
"If we'd had that extra 2 per cent, we would be in a very different position as a country. That's just more capital being invested here and overseas for our benefit," ISN's chief economist, Sacha Vidler, said.
The Financial Services Council, which represents retail funds, has dismissed previous ISN analysis of APRA figures as "misleading" because it is based on the performance of funds as a whole rather than individual investment options, such as balanced, conservative or growth funds. Members of retail funds are also older and tend to be more conservative, the council says.
The report comes as the government considers the Productivity Commission's call for more competition among funds that serve workers on awards who do not explicitly choose a fund. Funds owned by big banks are also pushing for more competition in the default fund market.
The commission has raised concerns about relying on past performance when choosing default funds, but Dr Vidler said there was a "statistically significant" link between past and future performance.