Superannuation fund members will be hit with negative returns this year for the first time since 2011 – and inflation will make things worse, according to Chant West.
The group’s lead researcher, Mano Mohankumar, said that December share market weakness had pushed down the overall performance.
Median growth funds with 61 to 80 per cent in growth assets would likely be down 4 per cent for the year. At the end of November they were down 2.7 per cent.
“You’ve got to remember that a small negative result this year follows a very strong 2021 when the median growth fund returned 13.5 per cent,” Mr Mohankumar said.
“Even 2020, the year of the COVID collapse that saw median growth funds fall 12 per cent in two months, finished with returns up 3.6 per cent because of the strong recovery later in the year,” he said.
So strong has the recovery been that the median growth fund is more than 11 per cent above the pre-COVID high reached in January 2020.
Nonetheless, the average balance reported by the Association of Superannuation Funds of Australia of $145,670 will lose $5286 in value over the calendar year if values finish 2022 down 4 per cent, as Chant West predicts.
Alex Dunnin, research director with Rainmaker, says fund members shouldn’t be complacent in an inflationary environment.
“While funds might be down 4 per cent if you add in inflation you have lost 10 per cent, so you would hope that there will be some improvement next year,” Mr Dunnin said.
However, the emergence of inflation, an energy crisis and rising interest rates might make eking out positive returns next year a bit difficult.
“Some members will look at those figures and be a bit freaked,” Mr Dunnin said.
Because members have enjoyed strong returns and low inflation for a long period of time people may become complacent and not realise their fund is not performing as well as it has been.
So, take a second look at your super fund returns when they are delivered and perhaps make another choice if you are in a laggard.
Super funds that have come increasingly under Australian Prudential Regulatory Authority (APRA) control in recent years have been performing better for members.
The regulator’s performance tests and heat maps have been applied to the MySuper products that members are defaulted into if they don’t make other choices.
Since the oversight began in 2019, 28 MySuper products have closed with 1.5 million member accounts representing $51.6 billion in funds transferred to other funds.
There have been some significant gains in the MySuper cohort with APRA reporting that 91.6 per cent of funds are performing adequately over the past three years.
If you compare that to returns over five years there is a significant improvement. Only 72 per cent of MySuper funds performed adequately over five years.
Many members still in under-performers
Although there are 350,000 fewer members in under-performing default funds since performance testing began, there are still 800,000 members in under-performers, APRA says.
That is yet another reason to review your superannuation fund’s performance because if you are caught in an under-performer you will be as much as $225,000 out of pocket when it comes to retirement, according to research by Industry Super Australia.
While the regulator has started to move against under-performing default products, the choice sector has remained out of the picture as far as performance monitoring goes.
APRA started collecting data on choice funds, those often in the for-profit retail sector, which are chosen by members because they think they suit their needs.
However, it has not proceeded with assessing the performance of the choice sector and has continually put back the start date. The choice sector is significant because it includes one-third of the members of superannuation funds and over half of pooled super fund assets.
An initial look at the sector by APRA some years ago found that as many as 61 per cent of funds were under-performing.
The regulator planned to put the sector up to scrutiny this year but has now put that date back another year.
Legislation to create dashboards to review the sector was passed 10 years ago but there has been no action.
“It’s not entirely clear why members will have to wait until 2023 before information about their fund performance and fee rates are revealed,” said a statement from Industry Super Australia (ISA).
“This adds to the long pattern of delays in the implementation of transparency and accountability tools for the choice sector. ”
Choice sector ‘escaped scrutiny’
While APRA has plans to performance test choice products, most will be left out of its remit because only so-called trustee directed products will be measured. They make up only 22 per cent of choice products with the vast majority in wrap products which are used by financial advisers to put together super portfolios.
Back in December 2020, SuperRatings found that only $254 billion of choice investment was in trustee-directed funds, while funds of $881 billion owned by 8.4 million Australians were in platform-style products which APRA has no plans yet to performance test.
“The choice sector has escaped scrutiny for far too long, and it is extremely disappointing that in three years of heat maps APRA has been unable to collect and use the data to assess the sector,” said ISA deputy CEO Matt Linden.
“The choice sector has more funds with higher fees and poor performance than MySuper, it is critical the regulator shines a light on that sector’s performance,” Mr Linden said.
The New Daily is owned by Industry Super Holdings
