Ian Fryer, general manager of Chant West has released an analysis cutting into criticisms of the super sector made across both sides of the major party divide.
The research head is concerned that such dialogue communicated by Coalition politicians such as Andrew Bragg and Tim Wilson alongside Labor MP Andrew Leigh, can both destroy confidence in the super system and further disengage consumers with their retirement savings.
“Some of the recent critical commentary on super doesn’t seem to align with the facts. If we look at the relevant data to validate the commentary, it tells a very different story,” Mr Fryer declared.
“This can only be bad for members and the long-term prospects of the whole retirement income system. We absolutely need to address issues to make the system work better but not in a way that seems to keep communicating that super is bad.”
The first claim Chant West has responded to is the superannuation system being a failure and leaving people worse off. Senator Bragg has made comments of the like, as a staunch critic of the sector.
But the research hub’s analysis has noted the long-term performance of the median super fund has outstripped typical return objectives – a return of 8 per cent per annum since the introduction of compulsory super in 1992.
Mr Fryer has argued the average outcome has also been greater than the typical return objective of CPI (consumer price index) plus 3.5 per cent per annum (5.8 per cent per annum since 1992).
“Even when you look at the past 20 years, which includes major share market downturns, the median growth fund has returned 6.3 per cent per annum, which is still ahead of the typical real return objective,” he said.
“And these returns have been delivered through a concessionally taxed system that adds even greater value for members.”
Owning a home as the best, fastest path to financial security in retirement has also been attacked as a claim. Mr Wilson has been vocal in making the argument, having pushed for early super withdrawals for first home buyers, to place towards house deposits.
The Retirement Income Review has also placed importance on home ownership alongside super savings.
However, Mr Fryer has warned that focusing solely on housing for retirement adequacy will lead to many more asset-rich but income-poor retirees.
“I think the super industry has a role to play in helping members better understand how home ownership and super can work together to achieve financial security in retirement,” he said.
But Labor politicans have also contributed to the discussion, with Chant West going in on a claim from Mr Leigh that Australians spend twice as much on superannuation fees as they do on electricity, totalling around $30 billion a year.
“Can super fees be reduced? Yes. Are they reducing? Yes, they are and recent APRA initiatives to reduce the number of funds and increase transparency should keep pushing fees down,” Mr Fryer said.
“However, it’s always dangerous to simply look at the cost of any service without considering the benefits it generates.”
As argued by Chant West, APRA-regulated funds, which represent around two-thirds of fund assets, accepted $120 billion in contributions for the year to September, while paying out $110 billion to members and generating more than $100 billion in investment income each year (after investment fees and costs).
“The benefits generated by the super industry are far greater than the cost,” Mr Fryer said.
Two more claims around fees have also faced scrutiny: the first being that there has been a 13.6 per cent increase in the average MySuper fee on a $50,000 balance since 2014.
Mr Fryer believes the remark is disingenuous as it has ignored the introduction of a new fee disclosure regime in 2017 that required funds to report a wider range of costs than they previously had to.
“When we account for the change in disclosure requirements, administration fees are the same as 2014 and investment fees have actually fallen by 12-15 per cent since 2014,” he said.
The analysis also rejected a claim that costs by Australian super funds are some of the highest in the OECD – pointing to 2018 OECD data showing the country’s administration costs at 0.4 per cent of assets as on par with other retirement income systems in Canada, Denmark and Finland.
But Mr Fryer asserted that any fee comparison across systems should be treated with caution, particularly given the local super system has been consistently ranked in the top systems in the world in the Mercer CFA Institute Global Pension Index. Last year it ranked fourth.
