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Superannuation is back in the spotlight once again after a draft report was released by the Productivity Commission last month. The Government tasked the Commission back in February 2016 to assess the performance of the super system to determine if it is meeting the needs of members and retirees and providing the best possible investment returns.
In the draft report, the Commission have identified a number of key points, most notably:
- Structural flaws like multiple accounts and entrenched underperformance eroding member accounts,
- Duplicate or unsuitable insurance policies within super, and
- Members being empowered to choose their own super product.
With over 40,000 super options offered by APRA-regulated funds on the market, it can be an overwhelming task for an individual to choose the best fit for them. Generally, individuals can choose between the following super categories:
- Retail funds
- Industry funds
- Public Sector Funds
- Corporate funds
- Eligible Rollover funds
I’m going to focus on retail and industry funds as there has been and is an ongoing rivalry between the two. The general consensus is that industry funds have outperformed retail funds over time. I dispute this having seen my own retail super balance achieve returns of 21.70% (year to date), 22.37% for the 2016/17 financial year and 14.07% per annum from October 2008 to date.
For all those asking – yes these returns are the result of fairly aggressive investment options, but that is my point. Industry funds simply do not provide the same level of investment choice to enable these sorts of returns.
Retail funds are not for everybody. There is generally a higher fee structure to reflect the benefits and opportunities available to the individual. But it is important to look at the performance figures net of investment fees for a true reflection of the returns.
Industry funds have their place, and I would say they are truly suited to individuals with superannuation balances below $50,000, where there is a limited chance that the balance will be eroded by fees. In my experience and opinion, superannuation balances in excess of this would benefit from a more tailored approach to investment, using both active and passive fund managers to cap fees and maximise returns.