Superannuation fund returns in 2020 will unlikely repeat of 2019’s strong results and funds will be more focused on increasing scale and driving down fees this year, according to SuperRatings.
The latest SuperRatings data found 2019 was the best year for super funds since 2013, with the median balanced option returning 13.8%.
The year only experience three down months and the December saw a fall of 0.9%.
“Markets were driven predominately by the health care and materials sectors, while the financial services sector, despite delivering a positive result, remains largely beaten down, thanks mostly to the major banks,” the research house said.
The median growth option in December lost 1.1% and returned 16% over the year, while the capital stable option lost an estimated -1.0% and returned 7.0% over the year.
Pensions performed similarly well in 2019, with the median balanced option returning an estimated 14.9% over 2019, compared to 18.2% for the growth option and 8.0% for the capital stable option.
SuperRatings executive director, Kirby Rappell, said: “We’re anticipating a solid year for super in 2020, but the key challenge for funds will be the low return environment.
“Even with the possibility of a pickup in economic growth, yields are extremely low and it’s getting harder to find opportunities in the market. Company earnings growth is slowing, and Australian consumers are under pressure, so fundamentally it will be more challenging than 2019. That doesn’t mean it will be a bad year, but super members should not expect to bank another 13%.”
SuperRatings noted that it expected more funds to merge to achieve greater scale in 2020.
“A key driver of mergers will be the sustainability of operating expenses, which as the chart below shows, is a challenge for some funds across all size categories,” it said.
“Though, smaller funds are more likely to have a high cost per member (CPM) and management expense ratio (MER), which measure the operational costs of the fund relative to its size.”
Rappell also said that funds would be focused on increasing scale and driving down fees due to increased regulatory scrutiny.
However, the firm said there were a number of providers who were struggling to deliver sufficient value for money and the industry’s ability to address this was critical. It said that the Australian Prudential and Regulation Authority now had stronger powers to forced underperforming funds to merge, which was likely to further drive consolidation across the industry.