Super funds' great delusions

Australia's big listed superannuation providers, Westpac (BT), AMP (AMP and Axa), and National Australia Bank (MLC) have their backs to the wall.

The widely read News Ltd tabloids led by the Herald Sun in Melbourne and the Daily Telegraph in Sydney have this week published performance tables which show that over the last ten years BT, AXA, AMP and MLC make up six of the bottom performing workplace default funds yielding between 2.5 and four per cent a year over the decade.

I have not checked the data, which was provided by Rainmaker group, and I am sure that BT, AMP and MLC have other funds that have performed much better.

Nevertheless it led the Herald Sun to claim that more than six million Australians would have been better stuffing cash under a mattress than putting into their employer's default fund.

They backed this up with a cartoon.

This is obviously a cheeky jibe that would not stand careful analysis but it is very powerful imagery.

What appears to have happened to these default funds is that far too high a percentage of the savings was invested in the share market which has not performed as well as other sectors including some parts of the property market, bonds and term deposits.

Superannuation Minister Bill Shorten has used the tables to suggest more superannuation money should be invested in infrastructure. In theory that's not a bad idea but the problem is that governments to date have not been good at structuring infrastructure for superannuation.

Whatever the reasons and taking into account the necessary qualifications BT, AXA, AMP and MLC are now being attacked on two fronts.

First the industry funds lead by REST, CareSuper, AustralianSuper, Catholic Super, BUSS (Q), Hostplus, Equipsuper, Telstra Super and CBus have been the best performing workplace funds, according to Rainmaker.

We have seen many instances in the past where performance rankings can change dramatically and I am sure that if different periods and/or funds were chosen then the listed companies would have come out in a better light.

Nevertheless the wide publication if this 10 year data on workplace funds is going to make life harder for Westpac, AMP and NAB.

On the other side all superannuation funds -- but particularly the listed majors -- are being attacked by the rise of self managed funds. In a vast number of cases individuals have found they are able to tailor their investments to their own needs and slash their costs. The strong performance of bank deposits has been a major factor in self managed funds doing well.

From minor amounts a decade ago, self managed funds have captured an incredible 35 per cent of the market and look set to take half of all superannuation.

The superannuation industry is growing rapidly so the trend towards self managed funds is masked. For 35 per cent (going to 50 per cent) of Australians to leave the big players including the industry funds shows that this is an industry that has not understood the needs of its customers.

I hate to say it but many of the executives in the industry still don't realise why so many Australians have started their own superannuation fund and are doing better than the professionals.

By the time they wake up it may be too late. Actually I think it is already too late.