Author: Leigh Jobling, Partner, TAG Financial Services
Industry Superannuation Funds play a critical role in safeguarding the retirement savings of millions of Australian workers. Industry Funds provide a simple, cost effective service for many people. This group is often young, have smaller balances, cannot access their super for 30+ years and are often disengaged with their superannuation. These funds often promote themselves as cheaper with superior performance. Let’s look at these 2 claims more closely.
Are industry funds cheaper?
For many years industry funds have been promoted as very cheap. Over the last few years, the superannuation regulator (APRA) has required all super funds, including industry super funds to be fully transparent with all fees charged to members, whether directly or indirectly.
In many instances, industry funds are only marginally more cost effective than other super fund options. For example, a member with a balance of $100,000 invested with Australian Super in the “balanced” option attracts annual fees of approximately $720, or 0.72%.
Superior investment performance?
Industry funds commonly promote superior investment performance.
Investment labels can be confusing
It’s important to recognise how investment options are labelled. For example, the Australian Super “balanced” option is invested approximately 73% in “growth” assets, primarily being shares (Australian and overseas) and property, and 27% in “defensive” assets. At TAG, our “balanced” portfolio is 60% growth and 40% defensive split. This difference can mean:
- Portfolios with the same or similar labels can perform differently.
- Fund members may be taking more investment risk than they realise based on the labelling of the investment option.
Unlisted Assets
The Australian Financial Review recently highlighted that over the years, many industry funds have invested in assets that are not “listed” on a financial market. Some examples include:
- Investing directly in office buildings or other property projects
- Investing in higher risk private equity
- Direct ownership interest in an airport, toll road, or electricity/gas utility projects.
As the market does not value these assets regularly, the fund can assign any value they feel is fair and reasonable. While the last few years have provided challenging economic conditions, it’s interesting that industry funds appeared to have outperformed. The regulator has now highlighted this anomaly and now requires industry funds to review the unlisted asset values and be more transparent.
In the most recent results, Australian Super’s “conservative balanced” option (which is very close to a 60/40 growth v defensive asset allocation) returned 5.64% for the year ended 30 June 2023, while many similar portfolios have returned closer to 8%. Perhaps closer scrutiny of how industry funds disclose fees and value assets has lifted the veil of secrecy that exists around many industry funds, creating a more level playing field for all.
More information
If you want to chat about your superannuation fund options, feel free to get in touch with us on 03 9886 0800 or drop us an email. We’re here to help you make the most of your super and secure the retirement you deserve.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2023. Please do not reproduce without the expressed written consent of the author.