Australia’s default superannuation system MySuper is 10 years old, and its introduction in 2014 has resulted in lower fees for super fund members.

The whole of the default superannuation system (the funds paid into by employers when workers make no other choice) was transferred to My Super options from 2017.

That segment now accounts for 41 per cent of APRA-regulated funds and 28 per cent of the system when self-managed funds are included.

Research group Chant West reports that MySuper products “have become a ‘must have’ for all super funds since their introduction in January 2014 with total assets in the sector totalling $1 trillion.”

“As new employees enter the workforce, its significance in the system is set to keep growing,” Chant West reported.

MySuper was introduced following rorts, malpractice and inefficiencies identified by an inquiry into the financial system run by former CBA CEO David Murray.

Chant West research director Ian Fryer said MySuper had been a success.

“I think overall it has brought fees down, in particular for retail products.”

The chart below identifies that fall in the costs across the sector.

The introduction of MySuper has seen overall fees for industry funds fall slightly from 0.95 per cent to 0.93 per cent, while the decline has been far greater for the for-profit retail sector.

Retail fund fees fell from 1.48 per cent before MySuper to 1 per cent currently.

“Those declines have partly been caused by the introduction of MySuper and partly performance testing introduced by APRA,” Fryer said.

Although there had been falls in costs in both sectors, massive declines in retail fund costs has brought costs closer together due to competition.

“If you want to have default superannuation you need to keep it simple and relatively low cost,” Fryer said.

Regulator wants more

Administration costs for super funds have fallen, but the level of that fall was masked by regulatory changes.

Funds are now required to give far more information to members than previously and the costs of overall administration have been reduced despite this increased regulatory burden.

However there are two parts to super performance. One is fees and the other is investment returns.

Chant West found that lower fees did not necessarily result in higher performance.

“It seems quite apparent (from our research) that there’s little or no correlation between the two measures,” Fryer said.

That is because some high-performing funds invest in more complex assets, which results in higher costs. But that can deliver better results overall.

“Some of the top performers are those with the highest investment fees, while some in the lower fee contingent are among the laggards in performance,” Fryer said.

But overall lower fees are an advantage to members in funds at all performance levels and cuts in fees have resulted in stronger returns for many retail funds.

Returns robust

The overall health of the superannuation system was emphasised by a 1.9 per cent return for the median growth/balance funds (61 to 80 per cent growth assets) in February, according to Chant West’s figures.

Super funds were up for the fourth consecutive month in February, with the median growth fund delivering 1.9 per cent over the month.

‘‘The return over those past four months is a staggering 9 per cent, lifting the return over the first eight months of the 2023-24 financial year to 6.7 per cent,’’ Chant West research chief Mano Mohankumar said.

Those returns mean that a fund worth $150,000 at the end of October would now be worth $163,500.

The strong February result was powered by international sharemarkets, fuelled in large part by healthy corporate earnings results.

‘‘Economic data released during February again showed continued resilience in the US economy, which weakens the case for interest rate cuts in the near term,’’ Mohankumar said.

SuperRatings reported similar results for February however it looks at performance of accumulation and pension mode funds individually.

It found balanced pension funds rose by 1.8 per cent, while accumulation funds rose by 1.9 per cent.

The trajectory of inflation and its effects on central bank interest rate policy is keeping market  outlooks uncertain.

However super funds continue to deliver gains for member balances, SuperRatings executive director Kirby Rappell said.

“Super fund returns remain much less volatile than equity markets, demonstrating the benefits of diversification and the ability of funds to weather these market conditions with competitive outcomes for their members,” Rappell said.

Overall the median balanced/growth fund has returned 7.9 per cent annually since compulsory super was introduced in July 1992.

The annual CPI increase over the same period has been 2.6 per cent, giving a real return of 5.3 per cent for fund members.

That is well above the 3.5 per cent target the system aimed for back in the 1990s.

The New Daily is owned by Industry Super Holdings