Today’s release of Australian Prudential Regulatory Authority (APRA) performance data has again highlighted the market failure of Australia’s super system. The data is evidence of the phenomenon that in super: “the more you pay, the less you get”.
Low cost not for profit funds again lead the five year performance results, with for profit retail funds dominating the bottom of the table.
Over the last five years among the nation’s largest 100 funds:
- Industry and not for profit super funds (industry, public sector and corporate) filled the top 36 best performing funds, and 43 of the top 50 performing funds;
- Retail funds filled 20 of the 21 worst performing funds;
Over the last five years among all 200 of the largest funds which data is available:
- Industry super funds outperformed retail public offer funds by an average of 2.47 percent per annum.
Industry Super Network (ISN) CEO David Whiteley said the new figures illustrate the central finding of the recently released “Supernomics” paper, that there is a negative relationship between fees and performance.
“In the Australian superannuation industry, for every 1 percent extra you pay in fees, net performance falls by 1.5 percent. That finding is well illustrated in this new data from the regulator.”
“Commissions and other financial incentives to financial planners are eroding the super savings of Australian workers. As of December 2009 $51 billion dollars had been lost to aggregate national savings through fees and retail fund underperformance. Our analysts project that by 2020 $184 billion (in 2009 dollars) will have been lost over a 25 year period.”
“The new APRA data today builds the case for why the Government must act to prohibit commissions and ongoing percentage based fees paid to financial planners.”
“Given the compulsory nature of super and its importance not only to individual retirees but also the national economy, it is appropriate that the regulatory framework reflects the central reality that milking superannuation via commissions is unsustainable public policy.”
The methodology used by APRA acts as an appropriate proxy for comparing the default or main investment options of Australian super funds.