Fresh research findings a timely reminder for consumers to consider their super fund’s performance

Fresh research findings a timely reminder for consumers to consider their super fund’s performance

New research has revealed there is an underperformance challenge that needs to be tackled within the superannuation industry, providing super fund members even more reason to check their fund’s performance.

According to research provider Rainmaker Information’s 2020 Superannuation Benchmarking Report, super funds continue to struggle to match asset class indexes across several major asset classes.

The worst-performing asset class relative to the capital market indexes was international shares, underperforming by 4.8 per cent per annum, 4.7 per cent per annum and 3.2 per cent per annum over one, three and five years respectively.

The relative performance of the international shares asset class over one year was the worst across the whole study of all asset classes and time periods relative to the benchmark.

Alex Dunnin, executive director of research and compliance at Rainmaker Information, said the irony is that while international shares was the worst asset class for super funds, it was also the best because it achieved the highest index return.

“If super funds could be more efficient in managing this complex asset class, their overall returns could be much higher," Mr Dunnin said.

Meanwhile, eight in 10 investment options within the Australian shares asset class outperformed the benchmark over one year, the highest strike rate in the review. This, however, fell to a three-in-10 strike rate over five years.

Cash had the next best strike rate, with six in 10 options outperforming the benchmark over one year.

The research found that international shares and fixed income both had less than 5 per cent of their investment options outperforming the benchmark over three and five years.

super performance research Rainmaker

Source: Rainmaker Information

Why do these asset class performance results matter?

Well, according to Rainmaker’s research, superannuation assets are invested into asset classes as follows:

  • International shares: 24 per cent
  • Australian shares: 21 per cent
  • Cash: 14 per cent
  • Australian fixed income: 12 per cent
  • Property: 8 per cent
  • International fixed income: 8 per cent

The remaining 13 per cent is invested into other assets such as hedge funds, infrastructure and private equity.

This means that the class in which superannuation assets are most heavily invested is also the worst-performing asset class relative to the capital market.

However, Mr Dunnin noted that despite the asset class underperformance, two-thirds of MySuper products are still tracking above their investment objectives over three years, “notwithstanding that investment objectives are formally set over rolling 10-year periods”. 

"These results should remind super fund members to check their super fund's performance at least every year,” he said.

“While they should be checking how their fund is performing relative to its peers, if they are investing into asset class investment options, they should check the performance against the market index."

Consider comparing your super fund’s performance using RateCity’s superannuation comparison table, which shows performance figures from the past five years.

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Learn more about superannuation

What is the superannuation rate?

The superannuation rate, or guarantee rate, is the percentage of your salary that your employer must pay into your superannuation fund. The superannuation guarantee has been set 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.

Is superannuation taxed?

Superannuation is taxed. It is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

How much is superannuation in Australia?

Superannuation in Australia is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent 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.

How can I increase my superannuation?

You can increase your superannuation through a ‘salary sacrifice’. This is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Like regular superannuation contributions, salary sacrifices are taxed at 15 per cent when they are paid into the fund.

What are ethical investment superannuation funds?

Ethical investment funds limit themselves to making ‘ethical’ investments (which each fund defines according to its own principles). For example, ethical funds might avoid investing in companies or industries that are linked to human suffering or environmental damage.

Is superannuation compulsory?

Superannuation is compulsory. Generally speaking, it can’t be touched until you’re at least 55 years old.

How much superannuation should I have?

The amount of superannuation you need to have at retirement is based on how much money you would expect to spend each week during your retirement. That, in turn, depends on whether you expect to lead a modest retirement or a comfortable retirement.

The Association of Superannuation Funds of Australia (ASFA) estimates you would need the following amount per week:

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

What fees do superannuation funds charge?

Superannuation funds can charge a range of fees, including:

  • Activity-based fees – for specific, irregular services, such as splitting an account after a divorce
  • Administration fees – to cover the cost of managing your account
  • Advice fees – for personal investment advice
  • Buy/sell spread fees – when you make contributions, switches and withdrawals
  • Exit fees – when you close your account
  • Investment fees – to cover the cost of managing your investments
  • Switching fees – when you choose a new investment option within the same fund

Is superannuation included in taxable income?

Superannuation is not included when calculating your income tax. So if you have a salary of $50,000, your assessable income would be $50,000, not $50,000 plus superannuation.

That said, superannuation itself is taxed. It is generally taxed at 15 per cent, although if you earn less than $37,000, you will be reimbursed up to $500 of the tax you paid.

Can my employer use money from my superannuation account?

No, your employer can’t touch the money that is paid into your superannuation account.

Am I entitled to superannuation if I'm not an Australian citizen?

Yes, permanent and temporary residents are entitled to superannuation.

What happens to my insurance cover if I change superannuation funds?

Some superannuation funds will allow you to transfer your insurance cover, without interruption, if you switch. However, others won’t. So it’s important you check before changing funds.

What are reportable employer superannuation contributions?

Reportable employer superannuation contributions are special contributions that an employer makes on top of the regular compulsory contributions. One example would be contributions made as part of a salary sacrifice arrangement.

What is superannuation?

Superannuation is money set aside for your retirement. This money is automatically paid into your superannuation fund by your employer.