Where the super tide is flowing

Self-managed and retail superannuation funds have suffered big swings against them in the latest industry statistics.

The two sectors at the ‘choice’ end of the super spectrum posted anaemic growth rates for the 2019 financial year, in a year when super funds grew on average by nearly 8 per cent.

Retail superannuation funds, including major players trying to distance themselves by offloading platform and fund management assets, grew their funds under management by just 0.5 per cent. These funds have been on the nose since the Royal Commission.

Self-managed super funds fared not much better, up just 1.65 per cent for the financial year.

The figures were recently released by the Australian Prudential Regulation Authority in their wrap-up of the 2019 financial year.

Industry funds were attracting the lion's share of the new business, or switchers, and were up by more than 13.8 per cent for the year, while the public sector (government run) funds were up 10.5 per cent.

In the middle were the corporate sector super funds, which increased funds under management by about 4.45 per cent for the year.

They are the five major superannuation sectors. Retail, industry, corporate and public sector are regulated by APRA, while SMSFs are regulated by the Australian Taxation Office.

The figures suggest that people's willingness to take control of their super, via SMSFs and retail funds, seems to have been dealt a blow from the ongoing fallout from the Royal Commission. The difference is far wider than simply investment performance, which would normally only have them separated by, potentially, a few percentage points.

Industry, corporate and public sector funds copped far less stick during the Royal Commission.

In assets under management, SMSFs are still the biggest individual sector, with a total of $747.6 billion, followed by industry funds with $718.7 billion.

Retail funds come in third with $625.7 billion, public sector funds hold $510.6 billion and corporate funds now account for just $58.6 billion.

APRA's statistics show further, slow, consolidation in the sector, with small decreases in the overall number of players in most of the APRA-fund categories across the financial year.

SMSFs were the exception, of course, in growing overall numbers. However, they increased only from 583,853 to 599,679, an increase of just 2.7 per cent for the year. It was much slower than the average growth rate in the last decade, or more, for the DIY sector.

MySuper products – the low-cost, low-advice sector, which must be the default option for employers – continue to grow in popularity. They keep picking up incoming funds. Assets under management grew by 12.3 per cent to $743 billion, as we saw an overall decrease in the number of MySuper products, from 104 to 96 over the year.

Overall, APRA-regulated funds grew in total from $1.8 trillion to nearly $1.94 trillion, an increase of 7.7 per cent.

APRA's figures also give a good insight into the damage of the December quarter last year, when investment markets went into freefall as the trade war between the US and China was hitting a peak.

Funds under management fell 4.5 per cent in the December quarter, before rebounding 6.2 per cent in the March quarter and growing a further 3.6 per cent in the June quarter.

Overall, it meant that investment returns for the year, for APRA funds, were 7.3 per cent for FY19. This is down a full percentage point on the 8.3 per cent achieved in FY18. These were almost identical to the five-year rolling returns reported by APRA in the report for the same two periods, showing super fund members have enjoyed relatively consistent growth in the last five to six years.

Another important figure that jumps out is the administration and operating expenses of APRA funds dropped marginally over the year also (0.85 per cent), showing that further pricing pressure is coming to bear on super funds as their scale and competition grows.

A major difference showed up in these figures between APRA-regulated funds and SMSFs. APRA funds are marginally more heavily invested in overseas equities, while SMSFs tend to be more heavily invested in Australian shares.

But that is consistently one of the reasons stated for SMSF owners taking control. They want to have more control over their assets and tend to choose assets they understand, which tends to be Australian listed shares over international shares, managed funds or exchange-traded funds.

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The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is managing director of Bruce Brammall Financial and is both a licensed financial adviser and mortgage broker. E: bruce@brucebrammallfinancial.com.au.