Superannuation funds have lost ground for the first time in a year, with the average balanced or growth option losing 1 per cent in value in September.

Despite that setback, funds are still up 2 per cent for the September quarter and up 17.8 per cent over the 12 months to September, according to Chant West.

SuperRatings, which splits its reporting between funds in pension and accumulation mode, found something similar.

It said the average balanced fund option in accumulation mode returned -1 per cent in September, while the average balanced fund option in pension mode returned -1.2 per cent.

Over the year, however, pension mode funds returned 19.4 per cent.

The companies classify funds as balanced or growth options if they have between 60 and 80 per cent in growth assets such as shares and property.

Sharemarket drivers

Chant West investment research manager Mano Mohankumar said sharemarkets had the strongest influence on returns in September.

Sharemarkets lost value over the month. And because growth and balanced options invest about 50 per cent of their funds into sharemarkets, this meant returns to members fell, too.

“Global sharemarkets retreated in September, mainly due to a spike in interest rates prompted by growing concern about emerging inflation,” Mr Mohankumar said. 

“Despite this setback, growth funds have returned a stunning 28 per cent over the 18 months since the COVID-induced low point at [the end of] March 2020.”

That means the average male balance of $162,275 would have increased over that time by $45,437 to $207,712, while the average female balance would have risen by $35,859 to $163,927.

So strong has the post-COVID market recovery been that growth funds are sitting 13 per cent above the pre-crisis high recorded at the end of January 2020, Mr Mohankumar said.

Over the September quarter, Australian shares were up 1.8 per cent while international shares were up 0.6 per cent in hedged terms.

However, when the depreciation of the Australian dollar (down from $US0.75 to $US0.72) is factored in, the growth in international shares was 4 per cent over the quarter.

Lower fees

Super fund members also saw a reduction in fees that will help push up returns over time.

The average fee charged on default MySuper accounts fell from 1.13 per cent in 2019-20 to 1.08 per cent in 2020-21, according to Rainmaker.

“Fees have fallen strongly in recent years. Back in 2017-18, super fees totalled $33 billion while now the figure is below $30 billion,” said Alex Dunnin, executive director of Rainmaker.

Super funds are working to become more efficient and lower their costs.

At the same time, there is “white-hot competition and regulatory scrutiny” that is also putting downward pressure on fees.

“Six in 10 default MySuper products cut their fees in 2020-21,” Mr Dunnin said.

Retail funds have felt the most pressure, as they previously charged higher fees because they included adviser commissions.

“Retail fund admin fees were 3.5 times that of not-for-profit funds in 2010,” Mr Dunnin said.

“This ratio [is now] 2.0 times.”

However, that difference is largely historical and the for-profit retail sector is now providing default funds as cheap as the not-for-profit sector.

The average total expense ratio for not-for-profit and retail default funds is now almost identical, at 1.07 per cent and 1.08 per cent respectively.

“Four of the 10 cheapest MySuper products are now retail,” Mr Dunnin said.

Lower costs means higher returns

The fee reductions are good news for fund members as they translate into higher retirement balances.

“Sixty per cent of default MySuper products reduced their fees in the last year, and these funds represented three-quarters of all the members of these funds,” Mr Dunnin said.

“The average Australian pays about $2200 annually in fees and while it has gone up a bit in recent years in dollar terms, so have account balances.”

Overall, superannuation savings rose 10 per cent last year and investment returns were at record levels.

Meanwhile, on current trends, average fees could fall to as low as 0.85 per cent in five years, which would put them on par with the cheapest options overseas.

But low fees are not the only driver of returns.

Investing in index funds tied to listed markets would deliver lower fees, Mr Dunnin said.

But they would miss out on complex investments in unlisted assets, which while costing more to administer, ultimately deliver higher growth and a better result for members over time.

The New Daily is owned by Industry Super Holdings