Industry super funds are under-performing

Industry Super Funds LogoIndustry Super Funds would have you believe that one of their logos on your superannuation statement could mean thousands of dollars more in your superannuation. What they fail to mention is that it also could mean thousands of dollars less.

In a submission to the Australian Industrial Relations Commission on award modernisation and default superannuation funds, Minister for Superannuation and Corporate Law, Senator Nick Sherry said:

“Aggregated, unpublished Australian Prudential Regulation Authority (APRA) data shows that there are 24 industry funds (out of a total of about 84 such funds), potential default funds in awards, that have under-performed over the long-term.”

Sherry said this underperformance was as high as 1.6 per cent a year and the funds had a membership of around 3 million accounts in a system wide total of around 21 million accounts. (Read the article here.)

Oh my goodness! That is 28.5 percent of funds are under-performing and 14 percent of fund account members that could be affected.

The Industry Super Funds network are extremely vocal about the fees charged by retail super funds and apparent under performance of retail funds. This brings to mind the phrase “Me thinks you protest too much!” Their incessant headline grabbing behaviour appears to be a smoke screen for the real story.

And anyway, who is paying for the millions of dollars of advertising spent by the Industry Super Funds network? The members! “Run only to profit members” – yeah right! If you are going to make a claim, make sure it is true!

The lesson here is to not be complacent and accept the BS fed to you by your providers. Take a few moments a year to compare their performance to relevant benchmarks and Crack The Whip Over Your Wealth!

Author: Matt Hern

Certified Financial Planner professional, Matt Hern has three times been awarded as one of Australia's Top 50 Financial Planners by The Australian Financial Review Smart Investor. He is passionate about guiding you on the right financial choices to achieve what you really want. Matt Hern is an Authorised Representative of Charter Financial Planning Limited AFSL 234665. All information is general advice only.

3 thoughts on “Industry super funds are under-performing”

  1. It would be interesting to know what proportion of retail or corporate funds are under performing. An APRA report released in January 2011 stated:

    “In the ten years to 30 June 2010, the average ROR for large funds was 3.3 per cent per annum. Public sector funds recorded an ROR of 4.2 per cent per annum, corporate funds 3.9 per cent per annum, industry funds 3.9 per cent per annum and retail funds recorded 2.5 per cent per annum.”

    Considering the difference in fees, it would appear that industry funds have over the last ten years on average out performed retail and corporate funds.

    Perhaps SMSFs (or at least indicie funds) are the answer considering that the S&P Indices vs active funds scorecard found that the benchmark out performed roughly 71% of active Australian share funds over 5 years….

    1. Thanks Karl for your comment.

      The APRA figures are in my view very misleading if you try to draw conclusions about the performance of one product sector over another. One needs to compare specific investment options not the overall movement in funds under management.

      Consider this analogy:
      Into a bucket I put some grains of sand, some river stones, some rocks and some boulders and then tell you the average weight of items in the bucket is 126grams. Is that a meaningful statistic from which you can draw conclusions about the bucket? Not at all.

      The closest thing to a proper comparison between product sectors is when they compare the performance of all the ‘balanced’ investment options. (They use ‘balanced’ since it is the most common option.) But that performance statistic is also error-prone as there is no single definition of ‘balanced’. The actual asset allocations of ‘balanced’ options varies widely and that materially impacts on the returns.

      I agree with the use of index funds, but that has nothing to do with the APRA stats and more to do with SPIVA stat you quoted.

      And I strongly caution against bringing SMSFs into this discussion about investment returns. That’s comparing the bucket to the contents of the bucket. Click here to read about why you don’t need an SMSF

  2. I understand re the buckets and that it is difficult to compare. I guess my point was that while 24% of industry funds may under perform over the long term, what proportion of retail / corporate funds under perform over the long run? Performance is relative, so it would have been useful to compare this under performance in industry funds with alternative funds to give the 24% some context…

    The APRA stats, while not overly useful, do seem to show that the industry funds are not performing much worse (if in fact they are worst) than retail / corporate funds. Although the devil is in the detail.

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