Australians are predicted to lose $120 billion during the next decade by investing with retail superannuation funds.
The Industry Super Network (ISN), a body that represents the not for profit superannuation sector, have released a 24 page report comparing the performance of both not for profit and retail superannuation funds.
The report, called Supernomics used Government data and has been released to coincide with a federal government review into superannuation, due in June.
The Supernomics report found that $47 billion had been ‘lost’ by investors in retail super funds because of fees and underperformance in the 14 years between 1996 and June 2009.
Extrapolating from these figures the report concludes that Australians investing in retail super funds stand to be $120 billion worse off over the next decade.
“All of those lost savings are not invested and they’re not earning interest – it snowballs,” Industry Super Network senior economist Sacha Vidler said.
The study found retail funds had delivered returns that were 1.8 per cent weaker, on average, every year compared with industry funds.
“If you were paying more and getting more, that would make sense but if you pay more in fees you’re getting worse returns.” Mr Vidler said.
Financial advisers continue to recommend retail funds because of the commissions paid to them that industry funds don’t offer.
”Why is it in the Australian superannuation industry, the more you pay, the less you get?” The chief executive of ISN, David Whiteley said. ”Competition within super is not working. There is profound market failure.”
It is believed this market failure is occurring because people are disengaged with their superannuation investments, most likely due to an effect known as temporal discounting, where items are discounted in importance when they will occur in the future compared to immediate concerns. For example, spending time comparing your superannuation fund performance right now vs the potential difference a ‘few percent’ might mean in 30 years time is seen as not worth it by many people who don’t see themselves as investors.
