When it comes to investment choice in superannuation, less is best, a new report has found.
Options to Lose – how sales became choice, an Industry Super Australia (ISA) analysis of official ten-year APRA data, shows the best performing superannuation funds have a main default investment option and a small number of other investment options.
In contrast, the worst performing funds are public-offer, and mostly bank-owned, retail funds with hundreds of investment options.
On average, bank-owned retail super funds offer 651 investment options each, compared to the not-for-profit industry fund average of 16 options each. Yet, independent SuperRatings figures show industry super funds have outperformed retail funds by an average of 2 per cent over 10 years, which could add around an additional $200,000 to the average nest egg over a working life.*
ISA public affairs director Matt Linden said: “Sales techniques, slickly marketed as ‘choice’, seem to be designed to bamboozle consumers and certainly don't appear to be improving super nest eggs”.
“Most Australians, busy raising families and paying off mortgages, don’t have the time to weigh up hundreds of investment options in the complex superannuation market”.
“Rational choice requires a deep understanding of fee, asset weightings, risk and return interactions”.
“Just as it does in private health insurance, sales-driven ‘choice’ in super is bamboozling Australian consumers”.
“This appears to be a deliberate business strategy to boost parent bank profits at the expense of fund member returns,” said Linden.
“It appears for-profit funds are ‘clipping the ticket’ by capturing margins at multiple points of the investment chain including extracting fees when changing options”.
“This research reinforces the mismatch between the banks’ commercial objectives and the public policy objectives of compulsory super – which most Australians believe should be not-for-profit,” he said.
The analysis found funds with simplified product structures and fewer investment options produced better outcomes - even for financially literate members.
The top performing Goldman Sachs & JBWere investment banker staff fund had only one investment option; and the non-public staff funds of the Reserve Bank, and three big retail banks have ten options.
Default options – where assets are professionally invested for the long term and pooled to access alternative asset classes, lower costs and other economies of scale – delivered higher returns for super fund members.
In 2015, APRA-regulated superannuation funds collectively offered a staggering 28,000 investment options. The full report Options to Lose – How sales became choice is available here.
*ASIC Money Smart calculator - start age 27, retire age 67, income $80,000 starting balance zero. Balance with investment returns of 4.5% = $442,402. Balance with investment returns of 6.5% = $663,270. Difference= $220,868 (Current dollars CPI deflated).
Matt Linden is available for interview. Media contact: Phil Davey 0414 867 188
Industry Super Australia provides policy, research and advocacy on behalf of 15 not-for-profit Industry SuperFunds who are the custodians of the retirement savings of five million Australians.
Past performance is not a reliable indicator of future performance. Industry Super Australia Pty Ltd ABN 72 158 563 270, Corporate Authorised Representative No. 426006 of Industry Fund Services Ltd ABN 54 007 016 195 AFSL 232514
*The above material, whilst correct at the time of publication may include references or statements which are no longer current.