Booming returns as super soars
AUSTRALIA’S superannuation industry is booming, with public sector, corporate and industry funds outpacing retail funds, and funds with at least $100 million returning an average of 6.7 per cent a year over the past 10 years.
Australian Prudential Regulation Authority (APRA) figures show small funds and industry funds are recording the biggest growth.
But corporate funds are not doing as well in terms of growth because the sector is consolidating. But in terms of performance, corporate funds were way in front, followed by public sector and then industry funds. Retail came last.
There is another reason for the low growth of corporate funds: employers are getting out of the superannuation industry and handing it over to the professionals, predominantly in the retail funds.
An APRA analysis of the past 10 years of superannuation data reveals that small funds and industry funds grew at rates of 22.7 per cent and 22.5 per cent, respectively.
Retail funds, excluding eligible rollover funds, grew 17.5 per cent and public sector funds grew 12.8 per cent. Corporate funds grew only 2.2 per cent.
The 10-year average return for all superannuation funds with assets of at least $100 million was 6.7 per cent.
For industry funds it was also 6.7 per cent, and for retail funds it was 5.3 per cent.
Public sector funds were in front with an 8 per cent return. Corporate funds also did well with a 7.8 per cent return.
The top industry funds were pulling in more than 9 per cent. But half the industry funds were tracking at just over 6 per cent. By way of contrast, corporate funds were making returns of more than 8 per cent.
All up, the worst-performing funds in the corporate sector did better than the best retail funds in terms of their asset weighted 10-year return on assets.
The differences in percentages might have serious effects on the value of end returns over the 10 years, particularly for those who have made the wrong choice.
But AXA chief investment officer Mark Dutton said much of the growth in the assets of retail funds was no longer reflected in retail superannuation products. These would not have been recognised in the APRA report, but were driving a big part of the retail funds’ business.
“Mostly what they appear as is investment product, typically what you might call wholesale trusts sitting on wrap platforms, which get used by the platform adviser as an investment vehicle for the superannuation funds,” Mr Dutton said.
“They may not be as recognisable as superannuation funds in their own right, but that’s where a lot of the money and growth is. Super is the driver for the growth, but the trusts are one of the main vehicles through which super is invested.”
The report highlights a significant change in Australia’s investment market since the superannuation guarantee, which quarantines 9 per cent of a person’s income, came into force in 1992.
Despite a period of relatively low inflation, the average rate of asset growth was 14 per cent, driven high by improved contributions and increased investment earnings.
However, the report implied that not everyone was gaining equal benefit. Some low-income employees had no accounts. Another issue was that other employees were not getting such high returns because they had spread their savings over many accounts, and the problem seemed to be getting worse.
