Industry Super Network (ISN) is calling for the long term performance data of super funds to be considered in the development and review of superannuation regulation and policy.
A 2012 update on research conducted by ISN’s Chief Economist Dr Sacha Vidler, A comparison of long term superannuation investment performance, shows that on average, retail super funds have underperformed not-for-profit funds (public sector, corporate and industry funds) by more than 2% per annum over the past 15 years (1996-2011).
Further, at 3.84% per annum over 15 years, average retail fund returns are lower than a naïve benchmark investment strategy (equal weightings in cash, domestic equities and foreign equities) after tax and costs, and even fall short of annual term deposits over the same period. The three not-for-profit sectors outperform these benchmarks.
Matthew Linden, Chief Policy Adviser of ISN, said, “Underperformance compounds over time with dramatic impact. Over the fifteen year period, if retail super funds had earned industry super fund returns, Australian retirement savings would currently be $75 billion higher.
“Considering the impacts of long term underperformance on members’ retirement savings, these findings must be taken into account as the Government moves to the implementation phase of the significant superannuation regulatory review process, including the selection of default funds in modern awards.”
The 2012 update also includes recently released research that shows past super fund performance is linked with future performance.
The research, conducted by Deloitte Access Economics, found there was persistence in performance for individual funds across two four-year periods (2004-2007; 2008-2011) that was “statistically significant” and that was very unlikely to be as a result of chance.
This means that a good performing fund in one period is likely to be a good performing fund in a subsequent period, and a poorly performing fund in one period is likely to be a poorly performing fund in a subsequent period.
Mr Linden commented, “The conventional thinking around super fund performance is that past performance is not a reliable indicator of future performance. However, this new research, which has been based on rigorous long term data, clearly shows that there a number of factors which do lead to consistent outperformance by super funds.”
The research also confirms that the two factors which persistently influence super fund returns are profit orientation, and in the case of not-for-profit funds, economies of scale.