Australia’s superannuation heavyweights have grown faster than all comparable western counterparts over five years to 2018, according to new research.

In its Pensions & Investments World 300  report, risk advisers Towers Willis Watson found Australia’s pension system, measured by funds in the top 300 globally, returned an average of 10.85 per cent a year in local currency terms and 5.73 per cent in US dollars between 2013 and 2018.

That made Australia’s the third-fastest-growing system in local currency behind India and China, and the fourth-fastest in US dollar terms.

Singapore crept ahead of Australia in US dollar terms because its currency was relatively stronger against the greenback.

The above table does not include the US performance because it cannot be measured relative to its own currency.

However, US pension assets grew at around 5.5 per cent annually, putting them behind Australia’s performance in terms of the greenback.

Overall, Australia accounts for only 3.7 per cent of assets under management among the top 300 pension funds globally.

The US, on the other hand, accounted for 39.8 per cent, Japan 11.9 per cent, the Netherlands 6.5 per cent, Canada 5.3 per cent, the UK 4.3 per cent and Germany only 1.2 per cent.

Why is Australia so strong?

There are several reasons why Australia’s pension funds grew so strongly.

“We have strong population growth, which means more people are entering the workforce and getting paid the superannuation guarantee [9.5 per cent of wages],” said Stephen Anthony, chief economist with Industry Super Australia.

“While India and China’s pension systems are growing faster than ours, they are very small and underdeveloped with large numbers of people joining,” Dr Anthony said.

That accounts for the fact that while China and India were the fastest-growing systems, their size is so negligible they aren’t accounted for separately in the TWW tables.

China’s pension system is underdeveloped. Photo: Getty.

Most European systems “are more mature than Australia’s”, said David Knox, senior partner with superannuation consultancy Mercer.

“That means they are paying out more in pensions which, in turn, means they have a higher exposure to conservative assets that deliver a regular return,” Mr Knox said.

“Australia’s system is largely defined contribution, while Europe and South Korea rely more on defined benefit pension systems.

“That means Australian funds go for growth investments like equities, property and infrastructure, while defined benefit schemes invest more in cash and bonds which are lower growth.”

Defined benefit schemes are more conservative because they promise retirees a defined income in retirement, while defined contribution schemes mandate a contribution level and leave the final payout to the vagaries of the market.

Our top funds

The TWW survey does not cover the whole Australian super system because it includes only individual funds that make it into the global top 300. These are the local contenders in the world rankings.

The tables include the largest industry and public sector funds because, on a standalone basis, they make it into the top 300.

But the fact the Future Fund ($147.7 billion) and AustralianSuper ($142.2 billion) come in at 29 and 33 show that relatively we’re not among the heavies.

By restricting the tables to individual funds, significant parts of the Australian superannuation industry are left out.

In December, Australia’s retail funds had $589 billion under management and self-managed super funds had $702 billion under management.

The survey bypassed bank-owned funds. Photo: AAP

Because retail funds are owned by a number of different financial institutions, many of which run a range of different funds, they are not big enough individually to get into the TWW charts.

The same is true of the 991,000 SMSFs which, individually, are way too small to be counted but collectively account for 26 per cent of the super system.

“Australia’s superannuation system has had a remarkable track record largely due to solid investment returns, fund mergers and the compulsory nature of Australian superannuation,” said Ross Clare, research director with the Association of Superannuation Funds of Australia.

The New Daily is owned by Industry Super Holdings