Australians in poor performing superannuation funds are losing as much as $13,000 over five years, new analysis has shown.
Retail funds underperformed profit-to-member funds by an average 23 per cent, the latest data from the Australian Prudential Regulation Authority revealed this week.
Profit-to-member funds, which include industry, corporate and public sector funds, returned an average 7 per cent per annum over the last five years, while retail funds returned 5.7 per cent.
Among the profit-to-member funds, industry funds recorded the highest returns: 7.6 per cent.
And according to analysis performed by the Australian Institute of Superannuation Trustees (AIST) - which represents the profit-to-member sector - that equates to a difference of $13,000.
The AIST analysis found that an industry fund member with $100,000 in super at the beginning of 2016 would have $146,000 on average by the end of 2020, while a retail fund member starting with the same amount would have $133,000.
“A one or two percentage differential in annual investment returns has a huge impact on the financial outcome for members in retirement,” AIST CEO Eva Scheerlinck said.
“It should be legislated that every super product is subject to annual performance testing. Any exclusion simply lets underperforming funds escape scrutiny and eats away at member returns.”
Scheerlink said the Government’s proposed superannuation overhaul failed to address the gap.
The Your Future, Your Super legislation will introduce annual performance tests, with funds potentially banned for failing to meet performance benchmarks.
However, AIST claims the test has a major flaw in that its initial rollout will only apply to default MySuper products, which tend to have higher performance. The test will apply to non-MySuper funds from July 2022.
And according to Industry Super Australia, the laws are essentially a free kick for retail funds.
It argues that the law does little to address high fees, which also erode members’ savings.
Super funds reach record high
The same APRA data revealed Australia’s total superannuation assets have now passed $3 trillion, reflecting a 2.2 per cent climb in savings between December 2019 and 2020.
Superannuation Minister Jane Hume said that while the record asset pool was worth celebrating, the system was still far from perfect.
“High fees, persistently underperforming funds and too many duplicate accounts are a drag on the system,” she said.