Bank super returns lag behind not-for-profit funds

Mark Bristow-23/02/2018- 2 min read

If your superannuation is held by a bank-owned fund, the value of your retirement savings may not have grown at the same rate as a not-for-profit fund, according to new data.

Analysis of the monthly SR50 Balanced Index from SuperRatings by Industry Super Australia (ISA) has found that as of 31 January 2018, industry super funds have on average outperformed bank-owned retail funds by 3.29% over one year; 3.49% over three years; and well over 2% over five, seven and ten year periods.

Average annual rate of return to 31 January 2018

	1 year	3 year	5 year	7 year	10 year
Industry super funds	12.7%	8.3%	10.0%	8.8%	6.2%
Bank-owned super funds	9.4%	4.8%	7.1%	6.2%	4.0%
Outperformance:	3.29%	3.49%	2.94%	2.66%	2.21%

Source: ISA analysis of SuperRatings Fund Crediting Rate Survey, SR50 Balanced (60-76) Index, January 2018

Industry Super Australia public affairs director, Matt Linden, said that the results highlighted the differences between the business models of bank-owned and industry super funds:

“Industry super funds send all profits back to their members, and this is reflected in better retirement savings returns.”

“Bank-owned retail funds serve two masters, splitting returns between shareholders and members.”

“Two per cent doesn’t seem like much, but over a lifetime it may add up to tens of thousands of dollars more – or, sadly, less – at retirement.”

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Mark Bristow

Senior Financial Writer

Mark Bristow is a senior financial writer for RateCity and an experienced analyst, researcher, and producer. Working for over ten years, Mark previously wrote and researched commercial real estate at CoreLogic, and has seen articles published at Lifehacker and Business Insider, among others. Most recently, Mark has joined RateCity working across finance as a whole. Whatever the topic, Mark’s goal is always to provide simple solutions to complex problems.

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Changing superannuation funds is a common and straightforward process. You can do it through your MyGov account or by filling out a rollover form and sending it to your new fund. You’ll also have to provide proof of identity.

Four questions to ask yourself before taking out an SMSF include:

Do I have enough superannuation to justify the higher set-up and running costs?
Am I able to handle complicated compliance obligations?
Am I willing to spend lots of time researching investment options?
Do I have the skill to make big financial decisions?

It’s also worth remembering that ordinary superannuation funds usually offer discounted life insurance and disability insurance. These discounts would no longer be available if you decided to manage your own super.

Accessing your superannuation is a simple administrative procedure – you just ask your fund to pay it. You can access your superannuation in three different ways:

Lump sum
Account-based pension
Part lump sum and part account-based pension

However, please note that your superannuation fund will only be able to make a payout if you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

Age 65
Your ‘preservation age’ and retire
Your preservation age and begin a ‘transition to retirement’ while still working

The preservation age has six different categories:

Date of birth	Preservation age
Before 1 July 1960	55
1 July 1960 – 30 June 1961	56
1 July 1961 – 30 June 1962	57
1 July 1962 – 30 June 1963	58
1 July 1963 – 30 June 1964	59
From 1 July 1964	60

There are also seven special circumstances under which you can claim your superannuation:

Compassionate grounds
Severe financial hardship
Temporary incapacity
Permanent incapacity
Superannuation inheritance
Superannuation balance under $200
Temporary resident departing Australia

Australia’s modern superannuation system – in which employers make compulsory contributions to their employees – started in 1992. However, before that, there were various restricted superannuation schemes applying to certain employees in certain industries. The very first superannuation scheme was introduced in the 19th century.

Superannuation is calculated at the rate of 9.5 per cent of your gross salary and wages. So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

Retail funds
Industry funds
Public sector funds
Corporate funds
Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

According to the Association of Superannuation Funds of Australia (ASFA), here is how much you would be able to spend per week during retirement:

Lifestyle	Singles	Couples
Modest	$465	$668
Comfortable	$837	$1,150

Here is the superannuation balance you would need to fund that level of spending:

Lifestyle	Singles	Couples
Modest	$50,000	$35,000
Comfortable	$545,000	$640,000

These figures come from the March 2017 edition of the ASFA Retirement Standard.

The reason people on modest lifestyles need so much less money is because they qualify for a far bigger age pension.

Here is how ASFA defines retirement lifestyles:

Category	Comfortable	Modest	Age pension
Holidays	One annual holiday in Australia	One or two short breaks in Australia near where you live	Shorter breaks or day trips in your own city
Eating out	Regularly eat out at restaurants. Good range and quality of food	Infrequently eat out at restaurants. Cheaper and less food	Only club special meals or inexpensive takeaway
Car	Owning a reasonable car	Owning an older, less reliable car	No car – or, if you do, a struggle to afford the upkeep
Alcohol	Bottled wine	Casked wine	Homebrew beer or no alcohol
Clothing	Good clothes	Reasonable clothes	Basic clothes
Hair	Regular haircuts at a good hairdresser	Regular haircuts at a basic salon	Less frequent haircuts or getting a friend to do it
Leisure	A range of regular leisure activities	One paid leisure activity, infrequently	Free or low-cost leisure activities
Electronics	A range of electronic equipment	Not much scope to run an air conditioner	Less heating in winter
Maintenance	Replace kitchen and bathroom over 20 years	No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom	No budget to fix home problems like a leaky roof
Insurance	Private health insurance	Private health insurance	No private health insurance

You can withdraw your superannuation when you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

Age 65
Your ‘preservation age’ and retire
Your preservation age and begin a ‘transition to retirement’ while still working

The preservation age – which is different to the pension age – is based on date of birth. Here are the six different categories:

Date of birth	Preservation age
Before 1 July 1960	55
1 July 1960 – 30 June 1961	56
1 July 1961 – 30 June 1962	57
1 July 1962 – 30 June 1963	58
1 July 1963 – 30 June 1964	59
From 1 July 1964	60

A transition to retirement allows you to continue working while accessing up to 10 per cent of the money in your superannuation account at the start of each financial year.

There are also seven special circumstances under which you can claim your superannuation:

Compassionate grounds
Severe financial hardship
Temporary incapacity
Permanent incapacity
Superannuation inheritance
Superannuation balance under $200
Temporary resident departing Australia

Most Australians who are of retirement age can qualify for the age pension. However, depending on the size of your assets and post-retirement income, you might be entitled to only a reduced pension. In some instances, you might not be entitled to any pension payments.

If your employer collapses, a trustee or administrator or liquidator will be appointed to manage the company. That trustee/administrator/liquidator will be required to pay your superannuation out of company funds.

If the company doesn’t have enough funds, in some cases company directors will be required to pay your superannuation. If the directors still don’t pay, the Australian Securities & Investment Commission (ASIC) might take legal action on your behalf. However, ASIC might decline to take legal action or might be unsuccessful.

So there might be some circumstances when you don’t receive all the superannuation you’re owed.

Most people can choose their own superannuation fund. However, you might not have this option if you are a member of certain defined benefit funds or covered by certain industrial agreements. If you don’t choose a superannuation fund, your employer will choose one for you.

Your money will be invested in an investment option of your choosing.

Lost superannuation refers to savings in an account that you’ve forgotten about. This can happen if you’ve opened several different accounts over the years while moving from job to job.

You can use your MyGov account to see details of all your superannuation accounts, including any you might have forgotten. Alternatively, you can fill in a ‘Searching for lost super’ form and send it to the Australian Taxation Office, which will then search on your behalf.

Most funds will allow you to access your superannuation account online. Another option is to manage your superannuation through myGov, which is a government portal through which you can access a range of services, including Medicare, Centrelink, aged care and child support.