As much as $94 billion is invested in “subscale” default super funds with worse-than-average 10-year returns, according to the Financial Services Council.
The Financial Services Council (FSC) has conducted an analysis of APRA data that shows there are 33 funds listed under modern awards than have less than $10 billion in funds under management.
The FSC labelled the 33 funds as “subscale”, citing Chant West research that suggests $10 billion is the level at which smaller not-for-profit funds charge higher fees and produce lower returns than larger not-for-profit funds.
APRA deputy chair Helen Rowell wrote to superannuation trustees last week warning them that the regulator is keeping a close eye on underperforming funds.
The 33 default funds identified by the FSC, which are a mix of industry funds and corporate super funds, manage $94 billion on behalf of 1.7 million member accounts, said the FSC.
The subscale funds make up 153 modern award superannuation listings, equating to 30.2 per cent of all award listings.
Average performance for the 33 funds is also below par at 4.5 per cent, said the FSC – 0.80 per cent lower than the average 5.30 per cent performance of all "growth" options in the market, and 1.4 per cent lower than the performance of the best performing MySuper products.
The weakest performing fund in the analysis (which the FSC declined to name) returned 2.7 per cent per annum over 10 years and is listed in two modern awards.
The FSC claimed a consumer "could be over $170,000 worse off by retirement as a result of the current industrial system".
FSC chief executive Sally Loane said, "If this many Australian workers were enabled by law to languish in poorly paying jobs with working conditions way below their peers, for as long as 40 years, there’d be outrage across the entire community.
"So we shouldn’t tolerate a system which leaves people in superannuation funds delivering significantly poor returns, for years and years. Many can’t change funds because of the current industrial laws governing default super, and many are chronically disengaged and disinterested. Either way, the system needs to change if the policy is going to work for all Australians."
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