While Australia’s superannuation sector is the envy of the world, the latest global data shows our funds spend more of your assets on operating costs than any other nation.
Aussies are in the top four countries whose super funds are worth more than the national wealth, as measured by gross domestic product (GDP), but the sector’s expenses as a proportion of fund assets are among the steepest.
In the Organisation for Economic Co-operation and Development (OECD) list, the Netherlands’ super system packs the most punch, followed by Iceland, Switzerland and Australia. Our funds are worth more than 120 per cent of the GDP, making our retirement nest eggs among the largest in the developed world.
Association of Superannuation Funds of Australia estimates the total value of super is $2.2 trillion (to the end of 2016), which is closer to 130 per cent of the nation’s wealth. Following strong share markets in 2017, that figure has now been exceeded.
However, the OECD Pension Markets in Focus 2017 report shows that Australia’s super costs are higher, at 0.8 per cent of total assets, than the three nations topping the list. In those countries, operating expenses range from 0.1 per cent to 0.6 per cent of total fund assets. In fact, Australia’s fund management costs were the most expensive of all large OECD nations, except Spain (1.1 per cent).
Of the four top nations, only Iceland’s funds paid out more benefits proportionately (7.1 per cent) compared with Australia on 6.1 per cent.
Both Australians and the Swiss paid more into their funds (8.3 per cent of GDP) than other nationals, well ahead of the next biggest contributors, the Icelanders (6.5 per cent).
Greece and Spain – whose economies fared disastrously after the Global Financial Crisis – reported the lowest contributions to pensions on 0 per cent and 0.4 per cent, respectively.
In terms of super returns, Australia was eighth on the list with a five-year average of 5.8 per cent. Canada led the ladder with 6.9 per cent.
Of the larger economies, Australian funds were significantly more skewed towards share market investments (51 per cent of assets). The three top performing nations on the basis of returns (Canada, the Netherlands and Hungary) had between eight per cent and 23 per cent of assets in equity.
While the over-reliance on shares has led some commentators to suggest the nation’s super fund returns are less reliable because of stock volatility, 2017’s bull markets around the world have helped Australian nest eggs grow significantly.
The OECD analysis, on the other hand reflected market conditions to the end of 2016, before some markets increased their momentum significantly.
Are you happy with the returns on your super? Do you think our fund managers should curtail costs and lower fees? Do Aussie funds invest in shares too heavily?