Hundreds of thousands of superannuation investors would have been better off putting their money in the bank, internal industry figures have revealed.
HUNDREDS of thousands of superannuation investors would have been better off forgoing the government's tax breaks on contributions and putting their money in the bank, internal industry figures have revealed.
In many cases, the value of savings in super funds has failed even to keep pace with inflation, effectively losing more than $100 billion in purchasing power over the past five years.
Documents prepared by industry analysts SuperRatings and obtained by The Sunday Age, rank the best and worst super funds based on a seven-year period, exposing those that have failed most spectacularly to preserve the spending power of members' savings. Among the worst performers were some of the top banks and insurers, including Westpac investment arm BT, the Commonwealth Bank's Colonial First State, and AXA, one of the nation's largest insurance companies.
The historically dire returns could not have come at a worse time, with the number of people hitting retirement age set to increase by 33 per cent between now and 2014, as baby boomers near the end of their careers.
Tens of thousands of people have been forced to postpone their retirement or make alternative plans for life after work.
The documents show the best performers were the industry funds, which do not pay commissions to financial planners, so their costs are lower. The top industry funds had returns averaging 6 per cent a year over the past seven years, despite the global financial crisis.
At the top of the performance tables, based on its seven-year results, is the OSF Super Mix 70 fund, set up for bank workers. At the base is BT, manager of the fund ranked lowest over the same period in the ''balanced fund'' sector, which accounts for 80 per cent of the nation's $1.3 trillion super savings.
The giant fund manager's BT Lifetime Super (Employers' Plan) has made just 1.5 per cent a year - half the annual rate of inflation of 2.93 per cent a year over the seven years. This equates to compounded losses of 9.6 per cent after inflation is factored in.
Also at the bottom of the rankings is AXA. Its SD Business super fund has returned 2.13 per cent a year over the same period. Another BT/Westpac fund, the BT Bus Super - described by the company as a ''deluxe fund'' for super savers - is ranked 40th out of the 43 funds in the sector.
Commonwealth Bank's Colonial First State is ranked 36th, just hitting the 3 per cent annual return mark, meaning it has produced virtually no growth in real terms over seven years.
Australia's balanced superannuation funds have a performance target of inflation plus 3 per cent a year. But the worst performers fall well short, despite charging some of the highest management fees in the industry, often exceeding 2 per cent a year.
Federal Assistant Treasurer Bill Shorten defended super as a long-term ''solid investment'', but criticised expensive retail funds managed by banks and insurers. ''Regardless of the overall return metrics, not-for-profit funds have consistently outperformed for-profit funds by around 2 percentage points a year,'' he said.
Jeff Bresnahan, of SuperRatings, said the global financial crisis meant results for the past few years were skewed. ''Over the longer term, investors have done very well in super,'' he said. Since 1992 the median balanced fund had averaged returns of 6 per cent a year.
Frequently Asked Questions about this Article…
Why did hundreds of thousands of superannuation investors reportedly end up better off putting their money in the bank?
Industry figures in the article show many super funds produced returns that failed to keep pace with inflation. Over the past five years this shortfall eroded more than $100 billion in members' purchasing power, meaning some investors would have had better real returns by forgoing super tax breaks and saving in the bank.
Which super funds were identified as the worst performers over the seven‑year period?
The SuperRatings rankings cited in the article place several bank- and insurer‑managed retail funds among the worst performers. Notable examples include Westpac’s investment arm BT (including BT Lifetime Super and BT Bus Super), AXA’s SD Business super fund, and Commonwealth Bank’s Colonial First State, which had low single‑digit annual returns over the seven years.
Which super funds were the top performers, according to the SuperRatings analysis?
Industry (not‑for‑profit) funds topped the performance tables. The OSF Super Mix 70 fund (for bank workers) was listed at the very top, and the best industry funds averaged about 6% a year over the seven‑year period despite the global financial crisis.
How did BT Lifetime Super’s returns compare with inflation?
BT Lifetime Super (Employers' Plan) returned just 1.5% per year over the seven years, while inflation averaged about 2.93% per year in the same period. After accounting for inflation this produced compounded real losses of roughly 9.6% over the seven years.
What role did fees and commissions play in fund performance?
The article says many of the worst‑performing funds were expensive retail funds run by banks and insurers, often charging some of the highest management fees (frequently exceeding 2% a year). Industry funds generally don’t pay commissions to financial planners, lowering costs and contributing to better net returns.
What was the industry benchmark or target for balanced superannuation funds?
Australia’s balanced superannuation funds typically have a performance target of inflation plus 3% per year. The article notes the worst performers fell well short of that target over the seven‑year period.
What broader retirement impact did poor super returns have?
Because of the weak returns, tens of thousands of people were reportedly forced to postpone retirement or make alternative plans. The article also notes the number of people hitting retirement age was expected to rise by 33% between the article’s present and 2014, heightening the problem for those close to retirement.
How did SuperRatings and industry experts explain the recent performance results?
Documents from SuperRatings ranked funds on seven‑year results. Jeff Bresnahan of SuperRatings cautioned that the global financial crisis skewed recent results but said that over the longer term investors have done well in super — for example, the median balanced fund averaged about 6% a year since 1992. Federal Assistant Treasurer Bill Shorten noted not‑for‑profit funds had consistently outperformed for‑profit funds by around 2 percentage points a year.
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