The Draft Report of the Productivity Commission (PC) into superannuation was discussed last post. The report identifies four main problems with Australia’s superannuation model that adversely impact the final payout. Underperformance, Multiple Accounts; High fees; and Expensive insurance. Slack Investor will look at a couple of the recommendations of the PC.
Not all funds … is good funds!
The PC found that nearly 5 million accounts are in underperforming funds. They defined a low benchmark (BP2) which was the average performance of all MySuper accounts and the chart shows the cluster of purple retail funds at the in the poor returns of the bottom left (Plus a few laggard industry funds … Shame!)
The performance of a fund was found to be the most critical factor in determining your compulsory super payout. You could potentially save $375 000 by getting this right. The PC came up with a cunning plan to counteract the disengagement of younger members of the workforce. The Productivity Commission propose that the default super choice for when you first start work is one of the 10 best performing funds – Cunning but Brilliant!- You automatically get put into one of the historically best performing funds at a time when you are likely not that skilled in picking a fund yourself.
… members should be placed into a default fund once and that fund would be derived from a ‘best in show’ list of high‑performing funds identified by an independent and expert panel.
I would hope that all workers retain the right to eventually move to a fund of their choice – but it is a fine first step to put new workers into one of the funds with an established good record. To Slack Investor, this panel sounds like a cushy job – If my application to be Reserve Bank governator is rejected, I would be like to be on that panel!
One Super account for life …. How Bout that!
… one third of accounts, … are unintended multiple accounts that are costing members $2.6 million a year in fees and insurance premiums.
A structural fault with our current system is that new superannuation accounts are usually created with each new job or new union award – if you are not proactive it is easy to accumulate a handful of super funds before you are 30. The inefficiency of this structure just leaks money out of your retirement accounts in a myriad of fees that profit the funds .
What to do … Now!
In the meantime, not advice, but this is what I would do. Don’t wait for the PC final report … or the politicians … Get Engaged (Part 1, Part 2) and immediately get online and check on the performance stats of your current super fund(s). If you are more than 5 years from retirement, I would be in a high growth option of your super fund. You usually do have choice!
Look at the table below assembled from data on the most excellent site Selecting Super and compare it with your current fund performance. Those wanting a more interactive experience should try the Stockspot site. If your fund’s performance results look bad (i.e. 5-yr less than 10%; 10-yr less than 5.6%) then lose your love for that fund and move on!
In what can only be described as a blatant display of my skills to get on the “best in show” panel, I have made my own “best in show” list and ranked the growth super funds according to their 5-year performance. I have only included the funds that are open to everyone, and … in over-achieving style, have listed the top 20 … yes 20! Followers of Slack Investor will find it no surprise that Retail Funds did not perform well enough to be in the top 20.
| Fund | 1-year | 3-year | 5-year | 7-year | 10-year |
|---|---|---|---|---|---|
| Intrust Core Super – Growth | 12.40% | 9.00% | 12.00% | 10.00% | 6.10% |
| VicSuper FutureSaver – Equity Growth | 11.90% | 8.30% | 11.90% | 7.10% | |
| StatewideSuper – High Growth | 11.50% | 9.40% | 11.70% | ||
| Cbus Industry Super – High Growth | 11.60% | 9.30% | 11.60% | 10.60% | 7.00% |
| AustSafe Super Industry – Super Growth | 13.40% | 8.80% | 11.60% | 10.10% | 6.20% |
| HOSTPLUS – Shares Plus | 12.50% | 9.50% | 11.30% | 10.00% | 7.10% |
| AustralianSuper – High Growth | 10.30% | 8.50% | 11.10% | 9.90% | 6.50% |
| LegalSuper – High Growth | 10.50% | 8.30% | 11.10% | 9.80% | 6.00% |
| Prime Super (Prime Division) – Managed Growth | 10.40% | 9.50% | 11.00% | 9.50% | 4.00% |
| Catholic Super – Aggressive | 10.60% | 8.90% | 11.00% | 9.90% | 7.30% |
| Club Plus Industry Division – High Growth | 13.00% | 9.40% | 10.80% | 9.60% | 5.90% |
| Rest Super – High Growth | 9.60% | 7.70% | 10.80% | 10.00% | 7.30% |
| HOSTPLUS – Balanced | 11.00% | 8.70% | 10.60% | 9.70% | 6.70% |
| CareSuper – Growth | 9.90% | 8.10% | 10.60% | 9.70% | 7.20% |
| First State Super Employer – High Growth | 10.80% | 7.70% | 10.60% | 9.90% | 7.10% |
| TWUSUPER – Equity Plus Option | 10.30% | 7.90% | 10.50% | 9.40% | 5.90% |
| Energy Super – Growth | 9.20% | 8.10% | 10.40% | 9.40% | 7.10% |
| Media Super – High Growth | 9.80% | 7.80% | 10.40% | 9.20% | 6.20% |
| HESTA – Shares Plus | 10.70% | 7.70% | 10.30% | 9.40% | 6.90% |
| MTAA Super – Growth | 9.30% | 8.20% | 10.20% | 8.00% | 3.50% |
Once you have made your choice, and opened up a fund that you are happy with (if required, contact fund and get account number first) now consolidate all accounts to your one favoured fund using My Gov ATO Portal. Let your employer know of your new choice for future contributions.
If you are 21, according to the Productivity Commission, you might have just saved yourself up to $426 000 in retirement funds. If you are 55, you could save $55 000. – Still, that’s not a bad days work!
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Great article! I used the tool on the Stockspot website you linked to, and fortunately, it seems I’m in a “fit cat” fund.
I think the biggest hurdle for people is the insurance they get through their Super providers. I looked into changing funds last year but realised that the new provider would not automatically offer the same level of insurance (without medical checks etc.), so I decided to stick with my existing fund.
I am sure a lot more people would be willing to switch funds if the government changed the rules on insurance.
Hi Mrs Flamingo hope you are “in the pink” Yes, I didn’t cover the impact of included insurance products in superannuation. Perhaps a future post! You are right, it is an important consideration once you develop a few responsibilities such as family and a mortgage – The government seems to be heading in the right direction with super reforms but progress is slow, you are right to take control yourself. Cheers … Slack Investor.