Big firms bottom of super list as not-for-profits reign

Almost all of the country’s worst-performing super funds are owned by some of Australia’s largest financial institutions.

The majority of the country’s worst-performing super funds over the past decade are for-profit funds. Picture: istock

Almost all of the country’s worst-performing super funds over the past decade are for-profit funds owned by some of Australia’s largest financial institutions, ­including AMP and IOOF, and have failed to lift their returns over the past three years.

Two funds operated by OnePath, once owned by ANZ, had the lowest returns over the 10 years to March 2021 of about 5.1 per cent, according to SuperRatings data, detailing the best and worst default options.

The balanced options offered by IOOF under the OnePath brand appear in the 10 worst ranked funds over the year to March, as they did three years earlier, generating annual ­returns of about 5-6 per cent over the decade, placing them near the bottom of the list. AMP funds similarly ­appeared in the bottom 10 of the latest rankings, as they did in 2018 when The ­Australian ­published a table of the worst-performing super­annuation funds.

In contrast, not-for-profit funds dominated the best performers, topped by the industry-run AustralianSuper, which returned 9.06 per cent on average over 10 years, and Hostplus, which returned 9.05 per cent.

Graphic: The Australian

The best retail fund, according to the figures, was run by low-cost index fund manager Vanguard and returned 8.97 per cent. The worst-performing ­industry fund, Australian Catholic Super, had an average 6.8 per cent annual return over the decade, the figures showed.

The new data comes as the Morrison government on Thursday passed reforms which will penalise poorly performing funds by closing them to new members if returns lag a benchmark for two consecutive years.

The Your Super, Your Future legislation will stop workers from being automatically ­enrolled in new funds when they change jobs.

Labor and superannuation industry lobby groups say the new reforms will leave some workers stuck with underperforming funds for life, assuming they do not choose to change.

Having money in a top-performing fund versus the worst can make a major difference to a worker’s retirement balance.

A single 35-year-old with $50,000 in super and earning $50,000 a year would retire at 67 with $424,500 in savings if they earned 9.06 per cent annually, according to ASIC’s MoneySmart calculator.

In contrast, the same Australian would end their working life with less than half that amount at $201,300 if their super fund instead earned 5.1 per cent.

A spokeswoman for Cruelty Free Super, which reported among the worst returns, said the 10-year performance “picked up the very early years of the fund when it was extremely small, which limited investment options”.

The spokeswoman noted a new investment manager was appointed in 2019 and that Cruelty Free Super Services only took control of the fund in October of last year.

“We do acknowledge that it will take some time to climb the rankings over a 10-year period,” she said.

Graphic: The Australian

IOOF made a similar argument, saying it had taken over a number of funds which were formerly under the ANZ group umbrella, and that it was in the process of improving their investment performances.

The OnePath and IOOF funds listed had “mostly been closed to new members for some time”, the statement also noted.

Morningstar director of fund manager research, Tim Murphy, warned that comparing performances between “balanced”-style funds could hide large differences in investment strategy and risk.

With no mandated definition of what assets are considered “defensive”, or low risk, and “growth” – riskier investments such as shares which also generate higher returns – funds were able to make their own judgments around the classification of some assets.

For example, Mr Murphy said by his reckoning, Hostplus’s heavy investments in unlisted infrastructure and property put the high performing fund in the “aggressive” risk and return category with 95 per cent in growth assets, rather than “balanced” as claimed.

In contrast, the FirstChoice Moderate Fund was more true to the label, he said, with a 65-35 split between growth and defensive-style assets.

“It’s important to compare apples with apples,” Mr Murphy said.

“In that top 10 pool, the average allocation to growth assets is definitely higher than the average allocation in the lowest 10.”