Industry superannuation funds have claimed a Productivity Commission (PC) report on investment performance suggests almost every dollar in a retail superannuation fund would be better off in a high-performing, low-cost not-for-profit fund.
The Australian Institute of Superannuation Trustees has pointed to the PC’s findings and called on the Government and regulators to act on underperforming funds.
AIST chief executive, Eva Scheerlinck said that while the PC report had found that Australia’s super system, on average, achieves comparable returns to other countries with most asset classes, its key finding had been that at least three million Australians were in underperforming super funds.
Further she said the report had identified almost all the underperforming funds as being retail (bank or insurance-owned) super funds.
“The findings of the report point to almost every dollar in retail super being better off in a high-performing, low-cost not-for-profit super fund,” Scheerlinck said. “There is no place for underperforming super funds in our default super system. We need the regulators to act on this.”
According to the AIST, the report found that not-for-profit funds (on average) reported significantly higher net returns and lower average costs than retail funds in most major asset classes and that smart investment decisions as well as other ‘governance efficacy’ played a role in this outperformance.
“Importantly, the Commission’s analysis of performance by asset class puts to bed the argument that the outperformance of our sector can be simply explained by differences in asset allocation,” Scheerlinck said. “It suggests that not-for-profit funds are making smarter choices of assets within asset classes and that there is a correlation between outperformance and good governance.”
She said the report had also noted that while retail funds were much more likely to use related parties for investment than not-for-profit funds, too few of these funds had provided data to the Commission to allow it to draw firm conclusions.
“The Australian Prudential Regulation Authority (APRA) should investigate related party arrangements in the retail sector, which are impacting members’ retirement savings,” Scheerlinck said. “In the words of Michael Hodge QC, we need to investigate ‘what happens when we leave trustees alone in the dark with our money’.”