Poor performing super funds costing Aussies up to $500K in retirement

Australia’s superannuation system is placing thousands of people into poorly performing super funds, costing many up to $500,000 in retirement, an alarming new study has found.

Super Consumers Australia has singled out a list of the worst performing super products over the last year in a strong warning to Aussies who are failing to shop around to find the best deal. Shockingly, the study showed as many as 170,000 people were placed into badly performing products in 2017-18 alone – potentially setting them back hundreds of thousands of dollars in retirement.

And the problem is only getting worse, the consumer advocacy group stated, as more than 176,000 new accounts were created in the same year for MySuper products which currently lie within the bottom quartile of performers. They join more than one million accounts already lying within this bracket, with experts branding the entire system an “unlucky lottery” for many Aussies.

“These superannuation laggards continue to attract tens of thousands of new members each year through a badly designed default system. Our superannuation system is an ‘unlucky lottery’ for too many Australians.” Super Consumers Australia Acting Director Xavier O’Halloran said. “What’s worse is that we know the industry is resisting changes which would ensure people end up in better performing products.”

He added: “The Productivity Commission proposed a suite of options, including ‘best in show’, which would have the immediate effect of stopping more people’s retirement savings ending up with products that would cost them in retirement”.

The Productivity Commission previously found that anyone placed (by default) into one of these under-performers would be $502,000 worse off by the time they retired. O’Halloran added: “Our super system should default people into products that will leave them well off in retirement. It’s an embarrassment.”

He went on to name funds like BT and industry funds Mine Super and WA Local Government Super as some of the worst, adding: “We need the regulators to take real action to weed out these laggards, but we acknowledge that this will take time. The regulators job will be made much easier if we stop growing underperforming products through a poorly designed default system.”

Super Consumers Australia have released a full list of some of the worst performing products alongside the study, and they fall within funds including Toyota Super, AMP Super Savings, Labour Union Co-Op, Suncorp Master Trust and Christian Super. Others included Super Directions Fund, Retirement Wrap, AMG Super and LESF Super – plus many more.

However, Starts at 60 money expert Jim Kilkenny recently weighed in on the issue of poor performing funds and insisted, rather than rushing out of a super fund if it’s not within the best performing sector, instead watch the returns over a longer period if you’re unsure. When asked, “My income stream is with an industry superannuation fund but that fund does not rate in the top six, according to Canstar’s ratings. I was very surprised that it wasn’t one of the stronger performers. Should I be swapping industry super funds or should I stay with my fund?”

He replied: “This is a good question but it very difficult one to answer in the absence of more information. The fact that your fund in a particular year does not rate well does not by itself necessitate a change in fund. It is more important to look at returns over a longer period (three to five years or longer) and make sure that you are comparing apples with apples.

“For example, there is no point comparing a fund which invests principally in Australian shares with one that invests principally in cash or fixed interest because shares have the potential for higher risk but also higher returns. I’m also always cautious of using historical results as a basis of making future decisions.”