Confused about your superannuation? You’re not alone. A new report from Industry Super Australia (ISA) shows that the plethora of options being offered by banks are leading to everyday Australians making suboptimal super decisions.
The report, Options to Lose: How “sales” became “choice” and the impact on Superannuation returns, found that some of Australia’s worst performing funds are public-offer, and mostly bank-owned, retail funds with hundreds of investment options.
According to the report, on average, bank-owned retail super funds offer 651 investment options each, compared to the not-for-profit industry fund average of 16 options each.
ISA public affairs director, Matt Linden, said that the extra complexity of many bank-owned retail funds is often marketed as “choice”, and can be confusing to everyday Australians:
“Most Australians, busy raising families and paying off mortgages, don’t have the time to weigh up hundreds of investment options in the complex superannuation market.”
“Rational choice requires a deep understanding of fee, asset weightings, risk and return interactions.”
According to Mr Linden, the confusing nature of these for-profit funds may be a deliberate business strategy on the part of the banks, with the intention of collecting multiple fees, while also minimising returns.
“This research reinforces the mismatch between the banks’ commercial objectives and the public policy objectives of compulsory super – which most Australians believe should be not-for-profit.”
Keeping super simple
According to the ISA analysis of 10 years of official Australian Prudential Regulation Authority (APRA) data, some of the best-performing super funds were also some of the least complex, featuring one main default investment option and a small number of other investment options. For example, the top-performing fund for Goldman Sachs & JBWere investment banker staff had only one investment option.
The analysis also found that default super options – where assets are professionally invested for the long term and pooled to access alternative asset classes, lower costs and other economies of scale – tended to deliver higher returns for super fund members.