The last financial year was a great one for superannuation, with median balances growing 9.2 per cent to June 30.
The best-performing funds broke into double digits and the sector as a whole outperformed residential property over a decade.
“Growth funds have now delivered nine consecutive positive financial year returns, averaging about 9 per cent a year,” said Mano Mohankumar, research manager with Chant West.
“The only other time we’ve seen such a long sequence of positive returns was from 1992-93 to 2000-01.”
Those returns meant the median growth or balanced funds, where most people have their money, have outperformed property as an investment measured against the ABS weighted average of house prices across eight capital cities.
While some property markets performed well above the average the comparison demonstrates super’s attractiveness as an investment.
“Over the 26 years since the introduction of the compulsory super system, median growth funds have returned an average of 8.3 per cent every year,” Mr Mohankumar said.
The system is actually outperforming expectations with Mr Mohankumar telling The New Daily: “We didn’t expect 9 per cent this year; it surprised on the upside.”
However, he added: “We don’t believe that 9 per cent is sustainable and it is likely to be more like CPI plus 3.5 per cent, or 6 per cent a year in the long term.”
Not-for-profit industry funds outperformed their retail rivals, returning 10.3 per cent for the June year compared to a still credible 9 per cent for the retail funds. That cements the long-term outperformance of the industry fund model.
The top-performing fund for the year was Hostplus with 12.5 per cent. Over 10 years it was UniSuper with 7.5 per cent.
Researcher SuperRatings reported similar results to Chant West and its chief executive Kirby Rappell said super’s performance was driven by rises in all asset classes.
“Australian shares were up 13.2 per cent, international shares 12.3 per cent, property 9.8 per cent and alternative assets 10 per cent,” he said.
Returns for cash and fixed interest were far lower, 1.6 per cent and 2.1 per cent respectively.
“Some funds, like Hostplus, performed well by increasing exposures to alternatives and so are now underweight cash and fixed interest,” Mr Rappell said.
Chant West’s Mr Mohankumar said every asset class was in positive territory last year “which is not the norm”.
The strong performance of super over the long term pointed to the necessity for people to be patient with super and not be put off by market fluctuations.
“During the GFC if you had moved into cash you locked in a loss and missed out on the rebound in markets,” Mr Mohankumar said.
David Simon, principal of Integral Private Wealth, said the performance figures drove home the fact that for many people super was a superior investment option to property.
“Super is essentially a tax structure, not an asset class. It allows you to gain the efficiency of scale by pooling resources. You can use it to invest in lots of different asset classes, including property, and it is taxed at a very concessional rate,” Mr Simon said.
“That makes it a more attractive investment than property, even in the most aspirational areas, and you get tax-free income from it when you retire. If property is held in your own name you will pay tax on rent and are liable for capital gains tax even after you retire.”
SuperRatings found that $100,000 in super invested in 2008 would have grown over 10 years to $185,412 in the average balanced fund, $208,662 in the best performing and $150,220 with the worst performing.
The New Daily is owned by Industry Super Holdings.