Superannuation system “middle of the pack” internationally

Nest egg, superannuaiton, SMSF, retirement
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Financial Services Council (FSC)/Deloitte Access Economics - International comparison superannuation systemThe Australian superannuation system has been described as “middle of the pack” in terms of investment returns and fees in an international comparison conducted by Deloitte Access Economics.

Titled Financial performance of Australia’s superannuation products, the report was recently released by the Financial Services Council.

Superannuation Returns

According to the report “Australia’s system appears to be ‘middle of the pack’” compared to overseas pension systems. The analysis included twelve pension systems worldwide and found that “Australia has the third highest returns”.

The report finds that the Australian superannuation system “delivered high gross returns, and high risk-adjusted returns” prior to the GFC, but describes the performance post-GFC as “relatively poor”. This is largely ascribed to the underperformance of the Australian share market, and the appreciation in the Australian dollar.

Superannuation Fees

Deloitte Access Economics finds that Australia’s super system “appears to have relatively high costs”. Part of this is attributed to the “relatively high reliance” on active investment management and a higher proportion of investment going to equities.

Australia “stands out” for the low levels of investment in fixed income compared to overseas funds. However, the cost of active investment management in Australia is “low relative to other advanced countries”.

The report points to a number of factors contributing to higher fees in the superannuation system in Australia, including:

  • a proliferation of products
  • lack of economies of scale
  • greater flexibility
  • bundled products

Australian superannuation funds lack the economies of scale compared to some overseas retirement funds, with the report pointing to the fact that Japan’s Government Pension Investment Fund is over 30 times larger than Australia’s largest industry super fund in terms of assets.

The flexibility of Australian superannuation products, including the “member choice rules as well as individual choice over the stream and timing of payouts”, although of value to consumers also raises costs.

The report also finds that MySuper funds are “significantly cheaper than choice products”, however they still have the fifth highest fees of comparable products. However international comparisons are difficult as Australian funds, including MySuper, are “likely to include a range of costs that may not be included in fee estimates for similar products overseas”.

Overall, the report finds that “the cost of Australian superannuation funds is above average; costs for MySuper products are comparable to those offered overseas”.

The full report is available on the FSC website (PDF).

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