Time to check that your super fund is not an underperformer

Super fund Australian Prudential Regulation Authority APRA MySuper
In an Australian Prudential Regulation Authority’s performance test, 1.1 million accounts (representing $56.2 billion) were invested in underperforming funds.

More than a million Australians are getting a letter in the mail that will hopefully make them reconsider their choice of super fund.

Those letters are the first “fail” notices sent out to members of MySuper default funds that have been found to underperform in an Australian Prudential Regulation Authority’s (APRA) performance test over seven years.

That test found that $56.2 billion representing 1.1 million accounts are invested in underperforming funds, with 13 funds failing the financial watchdog’s performance test.

Of course, you don’t need to wait for a letter to suddenly realise you are in an underperforming fund – all super fund members should check out their fund every few years to make sure that it has a strong, long term investment focus and a reasonable level of fees.

That is particularly the case because the APRA test only applies to MySuper funds, which means you could still be in an underperforming fund but not receive a letter.

Underperforming funds

According to the APRA test, the 13 underperforming funds were:

  • AMG MySuper
  • Commonwealth Bank Group Super
  • Energy Industries Superannuation Scheme-Pool
  • Colonial First State FirstChoice Superannuation Trust
  • Labour Union Co-Operative Retirement Fund
  • Maritime Super
  • BT Super’s Retirement Wrap
  • ASGARD Independence Plan Division Two
  • Australian Catholic Superannuation and Retirement Fund
  • The Victorian Independent Schools Superannuation Fund
  • Boc Gases Superannuation Fund
  • AvSuper Fund
  • Christian Super

The top 10 performers

The top 10 performers by net return (assuming a 30-year-old member with a $50,000 balance):

  • Local Government Super (now known as Active Super, 9.46% return)
  • AustralianSuper (9.44% return)
  • HOSTPLUS Superannuation Fund (9.33% return)
  • AON Master Trust (9.14% return)
  • Goldman Sachs & JBWere Superannuation Fund (9.13% return)
  • Unisuper (9.01% return)
  • Construction and Building Unions Superannuation Fund (9% return)
  • Mine Superannuation Fund (8.86% return)
  • QSuper Lifetime (8.8% return)
  • Retirement Wrap Westpac Group (8.75% return)

Be careful when changing super funds

When reconsidering your choice of super fund, it is important not to be too hasty.

It is not as simple as pulling out of your underperforming fund and choosing one with the best performance.

There are other considerations to consider before switching such as your risk profile, insurance, ethical investment and even radical fund changes.

Believe it or not there are even some funds on the shame list that might be worth staying with, given that they have radically changed the way that they are run.

What is important is to make sure you don’t stay in an underperforming fund, so you need to be absolutely convinced your “dud” fund has changed its ways if you are going to stay.

The Productivity Commission showed how important this is when it found that just a 0.5% difference in fees can cost a typical full-time worker about 12% of their balance – or $100,000 – by the time they retire.

That would be much worse if you combine high fees with poor performance, costing retirees a sum that would make a very large difference to their retirement lifestyle.

Some of the dud funds such as Commonwealth and BT have vowed to improve and some have pointed to other reasons for their underperformance.

For example, Maritime Super was so concerned about its underperformance that it pursued a partial merger with Hostplus which will see that very successful fund take over management.

So, it may make little sense to switch out of Maritime into Hostplus, given that has effectively already happened.

Christian Super argues it has taken an ethical approach to investment which has reduced returns a little but will still perform well – such as an investment funding affordable housing under the National Disability Insurance Scheme.

Fees have also been cut but as a specialist fund, it thinks it should be treated like buying free-range eggs over caged – a bit more expensive but still rewarding and worthwhile.

What fund members should be careful of is dud or underperforming funds that promise to improve by dialling up their risk – that could really end in disaster, a bit like a failed gambler chasing their losses by taking on higher risk bets.

If you are in a dud fund, you need to absolutely convinced that they have changed their ways in a sustainable and low risk way before sticking with them.

Mergers will accelerate

Perhaps the biggest benefit of the Federal Government’s Your Future, Your Super reforms will be the acceleration of change within the super sector.

The number of super funds was already falling but the pace of mergers and closures is sure to accelerate as funds become bigger and the funds with uncompetitive fee structures and poor investment performance sniff the wind and seek a merger.

With Australians spending more than $30 billion a year on superannuation fees, it is about time that they got what they paid for with strong financial management and performance to ensure they have a comfortable retirement.

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