Industry funds likely to dominate Productivity Commission top 10 list

A top 10 list of super funds is likely to mostly comprise industry funds – eight based on current figures – Roy Morgan finds.

A key recommendation of the Productivity Commission report into the super sector was for a top 10 ‘best in show’ list of super funds to be shown to new entrants to the workforce. Though this recommendation has been criticised by groups including industry funds, retail funds and the Labor party. The Government has yet to respond to the report.

Roy Morgan finds that, based on consumer satisfaction with financial performance, eight of the top ten funds would be industry funds.

“Apart from the already highly publicised performance tables that generally show industry funds to be the best performers, new data also shows that fund members rate satisfaction with the financial performance of industry funds higher than for retail funds,” said Roy Morgan.

“The experience of fund member need to be taken into account by those selecting the ten best funds to be listed, as they are the ones to be impacted by the final decision on choice of fund.”

Roy Morgan finds that industry funds had an average consumer satisfaction of 61.8% in November 2018, compared to an average of 57.2% for retail funds. While the major five retail super funds only have an average satisfaction of 54.7%. Not only do industry funds have higher satisfaction, they are also increasing the gap with retail funds – in the 12 months to November 2018 industry funds improved their satisfaction ratings by 2.6%, while retail funds fell 0.3%.

The criteria for the list have yet to be set, if the recommendation is adopted – under the Productivity Commission’s proposals an independent expert panel would decide on the criteria to determine which funds made it onto the best in show list.

Norman Morris, Industry Communications Director with Roy Morgan, said the recommendation for a top 10 list “faces a number of issues”, and argues that consumer satisfaction should be taken into account.

“The reason for including what fund members think in assessing the best performers is that they have the final decision on choice of fund, so their opinion counts,” he said.

“The overall assessment of satisfaction with financial performance by fund members clearly ranks the industry funds ahead of retail funds, similar to the pattern seen in published performance tables but the survey has the added advantage of being able to understand more about the members behind the ratings.”

A key part of his argument is that incorporating satisfaction could reduce issues where a well-performing fund is selected but then falls down the list.

“An important consideration in determining which funds will be included in the top ten, is that with market fluctuations they are subject to regular changes or re-ranking. This means that consumers may choose the top fund one day only to have it slide down the ranking. We have seen this happen with our satisfaction ratings, where only three funds out of the top ten have remained in this group for the last three years,” said Mr Morris.

“As superannuation is a very long term process, it is likely that over a number of decades there will be a large number of ranking changes. This is likely to cause uncertainty and confusion in member choice in an industry that already lacks member engagement. It is more likely that members want a simplified system rather than one subject to continuous change and decision making.”

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