Industry vs retail super funds

Why do industry super funds outperform retail?

Have you ever wondered why some super funds outperform others? Well, wonder no more as SuperRatings’ Jeff Bresnahan explains why industry super has come out on top.

There has been much conjecture around the differences between Not For Profit Funds (NFP), commonly referred to as Industry Funds, which are run for the profit of members, and Retail Master Trusts (RMT), which are typically provided by banks and financial institutions, and maintain a profit focus.

While most of these debates focus solely on the impact of fees on a member’s retirement outcome, it is also worthwhile to consider how they compare in terms of investment performance. Ultimately, it is the Net Benefit a member receives (calculated as the investment return net of all fees and taxes) that determines the true value for money of a fund.

Through SuperRatings’ research, it is evident that NFPs have typically produced stronger investment returns over the long term (10-year period), based on a Balanced Investment Option (with allocations to growth assets, such as shares and property, of between 60 and 76 per cent).

As illustrated in the table below, the average NFP fund achieved a return of 7.18 per cent per annum over the 10 years to 31 March 2015, compared with the average RMT fund of 5.71 per cent. In contrast, over the short term, RMTs have performed better than NFPs (13.67 per cent and 13.10 per cent over the one year to 31 March 2015, respectively).

1 Year to 31 March 2015

10 Years to 31 March 2015

Average NFP Balanced Investment Option

13.10%

7.18% per annum

Average RMT Balanced Investment Option

13.67%

5.71% per annum

The main factor driving the differential in performances is the different underlying investments that NFPs and RMTs typically use. RMTs have traditionally allocated a larger portion of assets to shares (both Australian and overseas) and listed property, while NFPs generally invest more heavily in unlisted investments, such as infrastructure, private equity and direct property.

The higher allocation to shares has undeniably assisted the performance of RMTs over the past year, with both Australian and international share markets delivering strong returns of 14.1 per cent and 29.7 per cent, respectively, well ahead of a number of the unlisted markets.

Over the long term, however, returns on Australian and international sharemarkets have been more subdued, given the impact of the Global Financial Crisis (GFC) affecting returns. Returns on unlisted assets were less adversely affected by the GFC and this helped drive the long-term outperformance of NFPs against their RMT counterparts.

In any case, superannuation is a long-term investment – primarily to support members’ retirement needs – where the investment performance cannot be considered in isolation.

Read more at Supersavvy.com.au

Read more at Superratings.com.au

Read more at Moneysmart.com.au





    COMMENTS

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    6th Aug 2015
    12:03pm
    Industry super funds are Union Super funds that whilst they charge less fee the union bosses draw big fees and the unions charge for services so Wether you like it or not you are contributing to Labor coffers . They are resisting attempts to have independent directors why?
    Obligatory membership by deals done by unions I would have thought was breaking the law . Whereby everyone was given a choice .
    I don't think Unions or banks should have care of our super but like civil servants it should be with the future fund ..
    The fees are lower, therefore the returns higher. The latest figures from the Australian Prudential Regulation Authority (APRA) show industry funds performed about 30 per cent better than retail over 10 years. It's not that they are superior money managers, they just charge lower fees.
    But get this: industry funds place billions of dollars to invest with the retail funds anyway. Rather than just plonking this wholesale money in index or ''passive'' funds, a lot of it is awarded to active managers.
    The irony is the active managers don't do any better than passive, they just charge more.
    The other point is the operating expenses of the industry funds are on the rise.
    The largest manager, Australian Super, has seen administration and operating expenses rise from $103 million in 2006 when it managed $28 billion and had 1.3 million members, to $214 million. (It now manages $65 billion and has 2 million members). That's a jump from $79 per member to $107 per member.
    This tends to make a mockery of the case the industry funds put for their deregulation, that it would bring economies of scale; that is, more money, lower costs.
    Transparency is also inadequate. Amid the glossy pictures of smiley happy people in its annual review there was a tiny mention of a $214 million cost for IT matters.


    Read more: http://www.smh.com.au/business/industry-super-funds-are-not-all-lowcost-havens-20140302-33tya.html#ixzz3hzoJDz3K
    Follow us: @smh on Twitter | sydneymorningherald on Facebook
    Anonymous
    6th Aug 2015
    12:09pm
    The bit down to future fund... Are my own words ... Below that is part of an article in SMH
    Tom Tank
    6th Aug 2015
    12:17pm
    The Future Fund, overseen by Peter Costello if my memory serves me correctly, is one of the organisation that is involved in dodgy money manipulation to avoid paying tax.
    Waiting to retire at 70
    6th Aug 2015
    2:08pm
    Yeah Pete, I read that the "union bosses" were sticking their "big fees" under their beds. But they were having trouble getting it under because ming's "reds under the bed!" were still their. The 'born to rule' brigade continue to rattle the 'pig' bucket.
    Anonymous
    6th Aug 2015
    2:16pm
    The future fund does not pay tax , so this means that civil servants are not paying tax on their fund whilst us Plebs have too .,,
    Waiting to retire at 70
    6th Aug 2015
    2:19pm
    'Pig' bucket is getting a good workout today
    mangomick
    6th Aug 2015
    2:50pm
    Fact Check Pete. Rio Tinto have their own industry fund for it's workers and I don't see any Union involvement in it. In fact it is managed by Mercer with trustees elected by the entire workforce. Many of the trustees are company accountants.
    Good try though trying to link industry funds with the Unions and Labor. Obviously straight out of the LNP handbook.
    Waiting to retire at 70
    6th Aug 2015
    3:01pm
    Mangomick,
    Don't confuse Pete with facts. What he lacks in knowledge he makes up for in self esteem.
    MICK
    7th Aug 2015
    11:01pm
    Pete: I see from your post that the right wing bias is alive and kicking. Sadly this is more of the same rubbish. You cannot deny that INdustry Funds are killing the retail funds, so you go on one of your union rants. Question: where do you think the fees in the retail funds go? Fairyland? To the top end of town mate....the people who do not think they should pay any tax!!!
    Perhaps get real and discuss the issue on its merits and free of politics. This is not a political topic.
    Anonymous
    8th Aug 2015
    10:39am
    That is right and I am suggesting that " the top end of town" do not look after our super. But the Government does . I would have thought as a leftie you would agree with this..,
    geomac
    6th Aug 2015
    12:10pm
    None of the industry funds have had the scandals that the plagued the other funds.
    geomac
    6th Aug 2015
    12:11pm
    " that have plagued the other funds "
    Anonymous
    6th Aug 2015
    12:15pm
    The future fund archives 10 to 14 per cent for the civil servants ...
    Anonymous
    6th Aug 2015
    12:18pm
    Exclusive An expenses scandal at a $700 million industry superannuation fund has ­triggered an investigation by the Australian Prudential Regulation Authority and changes to the fund’s trustees. The corporate expenses scandal at the Health Industry Plan was ­uncovered by a whistleblower at the fund. The expenses were incurred on the personal credit cards of chairman Anthony Wallace and chief executive Ross Bernays , who had the power to approve each others’ expense ­reimbursements.

    Mr Wallace was removed by fellow directors and Mr Bernays was terminated by the fund’s board in February following an APRA investigation. Both were employer ­representatives on the industry fund’s board of trustees.

    A forensic audit of the fund’s accounts by accountants PwC was completed last month and handed to new chairman Bob Whyburn .



    Read more: http://www.afr.com/it-pro/scandal-probe-at-industry-super-fund-20140508-itsim#ixzz3hztfkoCU
    Follow us: @FinancialReview on Twitter | financialreview on Facebook
    geomac
    6th Aug 2015
    12:58pm
    The above has nothing to do with malfeasance and illegal practices by for profit super funds that I mentioned. The scandals of for profit funds ( banks etc ) involve financial ruin for clients and excessive profits for commission advisors pushing bank favoured investments. The industry funds get profit for members while the rest push for profit for the banks ie themselves.
    Apples and oranges.
    MICK
    7th Aug 2015
    11:04pm
    The Financial Review Pete? Is this rag not owned by the Murdoch empire? And is the Murdoch empire not aligned with this government. Comrades?
    Funny how all of your posts only look in one direction. So who are you?
    Anonymous
    8th Aug 2015
    11:04am
    Mick you need to get out more . No the Fin Review is not a Murdoch Paper but Fairfax the same group that owns the Age and Sydney Morning Herald ...
    Tom Tank
    6th Aug 2015
    12:15pm
    What makes you think the directors the government want to appoint will be independent?
    Industry Funds have a balance on their Boards of Unions and Employers so much of your criticism would appear to be politically based.
    If the unions are taking as much out as you suggest how come the funds still outperform the the Bank and Insurance company funds. Lower fees do not explain it all and you made no mention of the fact that Industry Funds are only profit driven for their members not for the Institution that controls them.
    You also overlooked that the Financial Sector are big contributors to the Liberal Party.
    Anonymous
    6th Aug 2015
    12:38pm
    I am not suggesting that The financial institutions or Unions should run our super their are problems with both . The financial institutions charge 2 per cent and the with the union funds their are many including support an organisation that 90 per cent of the workers Who are not civil servants do not want to belong to .
    I am suggesting that The future fund which runs the civil servants super fund and achieves higher returns runs every body that do not want to run their own as I do. I pay no fees and get a return better than or equal to the future fund ..
    geomac
    6th Aug 2015
    1:07pm
    So a guy who shuns super funds of any kind wants to tell us how industry funds should be regulated and bank super funds are ok. Obviously has ESP as well regarding what members want or wish in industry funds. 90% accurate according to him. Mind you making sense of sentences is difficult because there seems no relevance. No cohesive train of thought.
    Anonymous
    6th Aug 2015
    2:22pm
    Of course I belong to a registered fund its that I chose tO run it myself..
    I did not say bank funds are OK but the opposite..
    MICK
    7th Aug 2015
    11:06pm
    Good post Tom. Pete is simply trying to discredit unions which as we all know are both good and bad.....unlike this government which is all bad. Rotten to the core.
    Suggestion Pete: when you write a comment BE BALANCED, not biased. It will give you some credibility.
    Anonymous
    8th Aug 2015
    10:41am
    The balance is that our super money should not be in the hands of Unions or Banks .

    6th Aug 2015
    12:45pm
    either shares or property.

    The 2014 result was above the 10-year average return of 6.3 per cent, thanks in no small part to strong results in calendar 2012 (11.7 per cent) and 2013 (16.3 per cent).

    “Since the bottom of the GFC in February 2009, balanced options have rebounded by a massive 72 per cent, fuelled by rebounding stock markets around the world,’’ he said.

    Mr Bresnahan noted that with billions of dollars now flowing into Australia’s compulsory super system every month, “money is going to find its way into the sharemarket whether we like it or not, because that’s how asset allocation works.

    “It’s a very good thing that we’re now seeing a lot more money being invested in overseas sharemarkets,’’ he said.
    Anonymous
    6th Aug 2015
    12:46pm
    I agree The Market gives a better return than property ...
    Anonymous
    6th Aug 2015
    12:54pm
    Secondly future retirees are not saving enough for an independent life . We should raise the Compulsary amount to 15 per cent with 10 per cent as now coming from employers and 5 per cent from employees . And secondly we should stop taxing contributions or earnings . To make the pot bigger..
    MICK
    7th Aug 2015
    11:10pm
    Yes Pete.........for your rich colleagues who have a lot of spare cash to put into superannuation. One would think that the current Tax Shelter was enough for the rich, but apparently not.
    Anonymous
    8th Aug 2015
    10:36am
    I am talking about normal workers Mick who need more money to retire on and be independent..,
    Circum
    11th Aug 2015
    5:15pm
    Your suggestion Pete that compulsory super made up of 10% employer contributions and 5% employee makes a lot of sense.I was fortunate enough to contribute 5% and my employer 5% long before it became compulsory.My 5% contribution was forced savings and as such became habit and didnt leave me short.People who cant budget or dont have the willpower to save may see this as eating into their spare cash to their own detriment
    Anonymous
    11th Aug 2015
    6:10pm
    Circum see my post at 7.53 on the 11th... Thanks

    6th Aug 2015
    12:58pm
    Retail superannuation funds have outperformed industry funds so far this financial year with industry funds looking to have significantly lost their edge ever since the Global Financial Crisis.

    The degree to which industry funds have lost their performance edge has been indicated by the fact that research and ratings houses are now using 15-year rather than 10-year time-spans to point to industry fund out-performance.

    The latest Chant West data, covering the March quarter, reveals that retail superannuation funds outperformed industry funds with a return of 6.1 per cent versus 5.6 per cent for industry funds.

    The data also showed that on the basis of financial year to date returns, retail superannuation funds had outperformed industry funds by 11.7 per cent versus 10.8 per cent.

    Chant West went on to note, however, that over a 15-year period industry funds had outperformed retail funds by 7.3 per cent versus 6.1 per cent.

    What the data does show, however, is that retail funds have been either ahead or only marginally behind (less than one basis point) the industry funds ever since the Global Financial Crisis.

    The main driver for this change in relative standing has been the performance of both Australian and global equities and the higher exposure of retail funds to those asset classes.

    The narrowing in return performance comes as the industry funds have sought to argue that they should be preferred in default selection because of past performance.
    Anonymous
    6th Aug 2015
    1:00pm
    http://www.moneymanagement.com.au/have-industry-funds-lost-their-edge
    Anonymous
    6th Aug 2015
    1:03pm
    Now since the GFC retail is outperforming industry funds anyone in Industry funds should switch to retail as you are only making Union Bosses fatter and richer ..
    KSS
    6th Aug 2015
    1:44pm
    And fees in retail funds are now just as competitive as the industry funds if you do your homework.
    The Bernster
    6th Aug 2015
    1:52pm
    Run this argument after the next share market correction. In the end this scenario's are like statistics, they can be manipulated to suit either side.
    Anonymous
    6th Aug 2015
    2:25pm
    Your argument makes no sense ...
    MICK
    7th Aug 2015
    11:13pm
    Blu blah blu blah..... The normal crap Pete.
    Anonymous
    8th Aug 2015
    10:34am
    What is Mick?
    Waiting to retire at 70
    6th Aug 2015
    2:00pm
    Thanks for the article and the links to other sites for details.

    So, I looked at "Superratings". Then took a look at Insurance premiums, etc for some of the top ten super funds offering insurance. With them, as your age increases either the premium rate increases or they reduce the benefit amount and leave the premium the same. Fine, understand that and this sounds quite reasonable.

    But I noticed, once you hit 65 the premium increase or the benefit decrease changes are quite dramatic. For example
    CASE 1:
    Age Last B'day 56 to 65 - Premium of $1.35/wk Office worker benefit for 2 units of $90,300
    Age Last B'day 66 $1:35/wk Office worker benefit for 2 units falls to $46,800
    A 48% DROP IN BENEFIT WHEN YOU TURN 66.
    CASE 2:
    Age Last B'day 59-65 $3:24/week for Office worker benefit for each unit of $11,348
    Age Last B'day 66 still $3:24/week for Office worker benefit for each unit of $4,232
    A 63% DROP IN BENEFIT WHEN YOU TURN 66.

    My question; Is there a 48% to 63% increase in deaths when one hits 66 years of age?

    So though I'd check the ABS to see what it's data can reveal on death rates in Australia. Here's an example:
    Life expectancy for those born between 1946 & 1948 was 66.1 (male) and 70.6 (female).
    If born betw these dates and you made it to 44 years, life expectancy is 76.0 & 82 respectively.
    And if you make it to 61 during 2007 - 2009, life expectancy increases to 83 & 86.3 respectively.
    So, it's reasonable to say, changes in life expectancy do not appear to account for the quite major change in insurance benefits once you hit 66 years.

    So is it more gouging by financial institutions? Or is there some other reason?
    Anonymous
    6th Aug 2015
    2:11pm
    Gouging .. But why buy death insurance ..
    Waiting to retire at 70
    6th Aug 2015
    2:16pm
    Pete, it's called freedom of choice
    Anonymous
    6th Aug 2015
    2:17pm
    Of course which I am fully for , but I was wondering the rationale of buying death insurance ...
    Waiting to retire at 70
    6th Aug 2015
    2:22pm
    For the very same reason it is offered.
    Anonymous
    6th Aug 2015
    2:26pm
    What that someone else benefits from your death?
    Waiting to retire at 70
    6th Aug 2015
    2:31pm
    Isn't that what life insurance is about? Or you've managed to collect on your life insurance already?
    Anonymous
    8th Aug 2015
    10:33am
    So your logic is that you will spend your money now on premiums so that someone else will be wealthy after your death ..
    Waiting to retire at 70
    8th Aug 2015
    10:49am
    Pete, it's call caring, empathy and community. The society I want has community at its core, not finance, not fear, not fwits. Seemingly unlike you I have no desire to take it with me nor do I wish ... think I rather go and sit in the sun, no ranters out there. Have a good day, you obviously need one.
    Anonymous
    8th Aug 2015
    11:07am
    You contradict yourself, obviously you want to die wealthy and leave it to others . This is not my aim at all .I would rather spend whatever I have on my kids now .
    Circum
    11th Aug 2015
    5:30pm
    Definately gouging with surprising silence from the media.The industry blamed an increase of claims.This may or may not be true for income protection..I dont know.For death cover this is not true as mortality rates are based on actuarial calculations and these have not changed.Yet premiums went up .Big time rip off.

    6th Aug 2015
    4:33pm
    I was in VicSuper for almost five years ending in 2001 and Steven Seagal performed better.
    MICK
    7th Aug 2015
    11:17pm
    Funds are a bit like that.
    Apparently people swap funds when they see the writing on the wall. A bit like trading in your old car on a new one when you see things are heading south. If you keep the old car and get caught with the (expensive) problems then your problem Eddie.
    Anonymous
    8th Aug 2015
    11:58am
    Gee if people are that smart why don't they run their own?

    8th Aug 2015
    9:16am
    What if the government suddenly had an attack of Marxism and mandated that all super — the whole $2 trillion — had to be managed by the state-owned Future Fund, so that everyone got the 8.2 per cent per year return available from mostly unlisted assets rather than the 5.9 per cent on offer from the super industry investing mainly in the sharemarket.

    Ordinary workers would all retire with at least $1m. Someone earning $150,000 and saving $1200 a month would get $3m. Very few people would get the age pension, apart from lifetime pensioners and the unemployed, and few would be using the public health system in old age.

    Government fiscal balances would be transformed. Taxes could be lowered, and there would be more money for infrastructure.

    Consumers could spend more, both while they’re working and in retirement. Industries would flourish, employment would boom and the economy would be unrecognisable — all from increasing the return from super.

    http://www.theaustralian.com.au/business/opinion/reform-superannuation-and-revitalise-the-nation/story-fnp85lcq-1227474757273
    Anonymous
    8th Aug 2015
    9:18am
    Nice to have Alan agree , he must read YLC Wonder what Mr Bresnahan thinks , of course he would be out of a job comparing funds.
    Anonymous
    8th Aug 2015
    9:19am
    How about YLC getting behind this idea it fits in neatly with its leftie views.,.

    8th Aug 2015
    11:02am
    Why do members call a tax on savings for Old Age a concession.
    Anonymous
    11th Aug 2015
    7:53am
    We don't need to raise the amount that people save but raise the amount they earn on those savings,,,we should take out of the hands of investment bankers and there high fees and stop taxing This way ALL our pensioners will be independent.,.and future taxpayers will be saved from spending ...


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