Industry Super Australia (ISA) has told the Productivity Commission (PC) that retail funds should not be allowed to hide behind their older member demographic or greater levels of choice because no empirical evidence exists to support such claims.
In a late submission to the PC Inquiry into Superannuation Competitiveness and Efficiency, the ISA said the key defence used by retail superannuation funds – that the real return of superannuation portfolios depends on the fund type (investment choice) selected by a member did not stand up to objective scrutiny.
Declaring that the cumulative average performance of retail superannuation funds had been lower than other kinds of superannuation funds for as long as comparisons had been issued, the ISA said that the retail funds had been arguing that fund-level performance comparisons could create an inaccurate impression because a fund’s performance was not necessarily the same as the performance a particular member might receive based on the options the member is invested in.
It said the retail funds had also argued that they had an older membership, which required a more defensive asset allocation, resulting in lower net returns.
However, referencing research undertaken by the ISA’s director policy, Zachary May and Phil Gallagher the submission said the pair could “not find empirical support for the proposition that member demographics, product mix, or risk preference explain lower average performance by retail super funds”.
It said that comparing only pension options of a similar strategy, to ensure similar member demographics and product risk profiles, industry super fund pension options consistently achieved higher median and mean performance compared to retail super fund pension options.
Further, it said some results had been especially striking, “for example, the bottom quartile of industry super fund cash pension option returns begins at a point greater than or equal to the beginning of the top quartile of retail fund cash pension options returns for the one, five and ten-year periods to June 2016.
“Over ten years, the worst performing industry super fund cash pension option outperformed more than 75 per cent of retail super fund cash pension options,” the submission said.
“Comparing only accumulation options of a similar investment strategy, industry super fund accumulation options achieved higher median performance compared to retail super fund options.”
Dealing with the question of an older demographic, the ISA submission said public sector funds had an older demographic than retail super funds, but also had higher average levels of performance than did retail super funds.
“Public sector funds have a higher proportion of members aged 50-59, aged 60-64, and aged 65 and over, than do retail super funds. Public sector funds have comparable levels of average performance to industry super funds notwithstanding that they have much older demographics than industry super funds,” the submission said.
By Mike Taylor
12 April 2018