Retirement savings in not-for-profit super funds have continued to boom, leaving retail funds – those run by banks and financial services companies and often recommended by financial planners – in the dust.
In the five years to March 31, the money managed by retail funds has grown by an average of 3.1 per cent a year compared to about 10.1 per cent a year for the not-for-profit super fund segment, which includes not only industry funds but also public sector funds.
Superannuation is increasing becoming dominated by not-for-profit funds.Credit:AFR
The figures from researcher Rainmaker Information, using data from the Australian Prudential Regulation Authority (APRA), show not-for-profit funds holding about $1.8 trillion in retirement savings compared to about $700 billion held in retail funds.
Alex Dunnin, executive director of research at Rainmaker Information, says the dominance of not-for-profit funds is only going to get greater.
He attributes their strength to investments in unlisted property and unlisted infrastructure which, for the most part, has helped them outperform retail funds over the longer term.
Actuary Michael Rice, who consults with the superannuation industry, says the top spots in the performance tables published by researchers are consistently dominated by not-for-profit funds.
There was also the Royal Commission into misconduct in the banking, superannuation and financial services that found some cases of wrongdoing among bank-run super funds and other retail funds, he says.
There are other reasons behind the growth in industry funds. Anyone who works in the hospitality or retail sectors, perhaps part-time while a student, for example, will have their super likely paid into an industry fund, which they tend to keep as they change employers later on, Rice says.
Smaller industry funds have also been merging with larger industry funds to a greater extent than has been occurring among retail funds, often benefiting industry fund members through scale advantages, such as lower fees.
Figures from the Association of Superannuation Funds of Australia (ASFA) in the June quarter of 2022 shows 31 industry funds with 11.4 million accounts, 32 public sector funds with 3.5 million accounts, and 83 retail funds with seven million accounts.
“It’s a big challenge for retail funds to turn things around as they are not starting from a position of strength,” Rice says.
Rainmaker’s Dunnin says some retail funds are fighting back. They are mimicking not-for-profit funds with simpler investment options, lower fees and better returns, and are less reliant on financial advisers for distribution.
Rainmaker’s analysis also shows the growth of self-managed super funds has slowed dramatically since the introduction of the Transfer Balance Cap in 2017. This is the cap on the amount of superannuation that can be transferred into a retirement phase pension, where there is no tax on investment earnings.
The general cap is $1.7 million for the current financial year. The amount held in DIY super funds grew by 5.4 per cent, on average, over the five years to March 31, 2022. While that outpaced retail funds, it was only about half the growth of not-for-profit funds.
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- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Investors should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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