Super is not so super

Former Treasurer Peter Costello has called on the government to review the superannuation system, in light of returns below inflation and rolling losses over five years.

According to SuperRatings figures, over the past year, the average balanced super fund (the default fund for many employees) has returned just 0.3% – well short of inflation – while over five years, the rolling returns are a loss of 0.2%.

As quoted by the Australian Financial Review, of the 89 super funds offering a long-only Australian strategy using the S&P/ ASX 200 Accumulation index as their benchmark, just two have outperformed the market during the past 12 months, and that’s before costs. The returns by fund managers such as Perpetual Limited (ASX: PPT)Platinum Asset Management Limited (ASX: PTM), K2 Asset Management Limited (ASX: KAM) and AMP Limited (ASX: AMP) over the past year have been ordinary.

Mr Costello has (perhaps unsurprisingly) slammed the Labor government, accusing it of ignorance over the legislation to raise the superannuation guarantee from the current 9% to 12% by 2019/2020. In a report in the Fairfax media, he suggested that the government is unconcerned about what happens to super once it has gone from employees’ pay into the super industry, and has said that very few people realise that this system has recently lost money.

He went on to say that there had been an assumption in Australia that putting extra money into super was automatically a good thing, but what super funds had been returning to members had been overlooked:

“There is one sector of the financial sector in Australia that the government has never properly looked at, which is superannuation”.

Mr Costello says should it be reviewed , particularly at a time when he says the government is requiring people to give up more and more of their take-home pay and hand it across to the industry. The main problem for the economy is that if poor returns continue, more and more people won’t be able to rely on their superannuation to pay for their retirement, and the government will have to fork out more in aged pensions.

The coalition is planning to hold a review of the financial system if it wins the next election, but Mr Costello has said that the review would only be beneficial if its focus includes questions such as whether superannuation is meeting the needs of members and the whole economy.

The Foolish bottom line

The dismal returns by fund managers has seen a massive flow of funds into self-managed super funds, with the industry representing around a third of all superannuation monies. That appears likely to grow.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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