How does MySuper stack up against other options?

With new research showing that a significant majority of super fund members don’t swap out of MySuper options, Money Management looked at data from FE Analytics to see whether consumers actually suffer much harm from remaining in default options.

According to Vanguard’s How Australia Saves report, 87 per cent of all super accounts are invested solely in MySuper options, with most members (97 per cent in fact) showing little interest in making portfolio switches in the last financial year.

While this could seem like a slap in the face of the varied options super funds work to offer, is there actually much detriment to members in sticking to the default option?

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Data from FE Analytics suggests that any damage is limited, at least for options intended to jump start your balance growth. In the ten years to February’s end, the returns of the Mixed Asset Balanced sector, which encompasses most MySuper options, were within 1.1 percentage points of those of both the Mixed Asset Growth and Aggressive sectors. They each returned 7.08, 8.07 and 8.18 per cent for the time period.

While compounding interest would see this difference add up to quite a bit over a lifetime, staying in the default isn’t as damaging to MySuper members as you may expect, especially as most members swapping between portfolios wouldn’t stay in aggressive options as they aged.

Furthermore, the limited difference in returns wasn’t reflected in similarly small differences in volatility. Members in Aggressive options paid for their higher returns with reasonably higher risk, with the sector recording volatility of 6.41 per cent for the period. The Growth sector wasn’t far behind at 5.96 per cent, while the Balanced option was nearly two full percentage points behind Aggressive at 4.66 per cent. Considering large jumps in volatility occur across smaller percentage differences than with returns, this isn’t an insignificant difference.

Surprisingly, flexible options showed the strongest performance over the decade, returning 8.28 per cent. The Mixed Asset Moderate and Cautious sectors were predictably much lower, at .12 and 4.37 per cent. Also, predictably, this came at a far more appealing risk level for members reaching retirement, with the Moderate sector delivering volatility of 2.62 per cent and the Cautious sector of just 1.88 per cent.

This trend continued over the five years to last month’s end too, as the chart below shows, with the Mixed Asset Aggressive and Growth sectors only outperforming their Balanced counterpart, which returned 5.27 per cent, by 1.07 and 0.31 percentage points respectively. Again, this came at the cost of comparatively larger differences in volatility. The Aggressive, Growth and Balanced options recorded volatilities of 5.85, 5.3 and 4.17 per cent for the period respectively.

Over three years, the jump between the Aggressive and Balanced sectors was more pronounced, with returns of 8.01 and 6.15 per cent respectively, while the difference between Growth and Balanced were again limited to well under a percentage point at 0.79.

 




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Of course, many of the Industry Super Fund "balanced" options are in reality "high growth" funds. So this is pretty much all flawed.

It's amazing that Super Ratings can classify so many union funds as "Balanced" when their asset allocation according to Lonsec's definitions would classify them as Growth or High Growth. Yet Super Ratings and Lonsec are now the same company!

There must be some major conflicts of interest going on inside that organisation. Little wonder when most of Super Ratings revenue comes from fees paid by union super funds to use "research" results for marketing purposes.

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