The spectre of the banking royal commission is still hanging over superannuation, with members deserting the retail sector for industry funds.
In the year to June 2019 almost $20 billion left the retail, or for-profit, sector and headed for industry funds. As a result the industry funds sector saw its asset base rise 13.8 per cent, to $718.7 billion, while the retail sector remained flat at $625.7 billion. “The royal commission changed perceptions of funds with people seeing negative publicity about retail funds,” said Ian Fryer, research chief with super specialist Chant West.
“That encouraged them to say ‘I’ll get out of that’ and they moved to an industry fund.
“That was a short term impact but whether it will continue into the longer term is an open question.”
Dark clouds evident before commission
Interestingly the move out of retail funds started before Commissioner Kenneth Hayne’s royal commission and was first evident in 2017.
The likely source of the migration is a series of financial scandals involving the banks and their super funds unearthed by the media during that time.
The move to industry funds is being reflected in the figures on super contributions.
Since the negative publicity began, contributions to retail funds have dropped in absolute terms and also as a percentage of the market.
During 2018-19, while the commission raged, retail contributions were virtually flat at $31.88 billion.
Industry fund contributions, however, grew at 11.5 per cent to $45.42 billion.
The move to industry funds is driven by performance as much as reputation, said Matt Linden, deputy chief executive of Industry Super Australia.
“What’s really important here is that the growth in industry funds is being driven by superior investment performance year in and year out – it’s not just about contributions,” he said.
“While we’re seeing the trend of consumers voting with their feet and switching to industry funds continue, what we’re seeing at a fund level is this being led by engaged members. They’re savvy about their super, and they’re making deliberate and informed decisions to switch based on performance.”
The move to self-managed superannuation funds has also slowed dramatically in recent years.
Net creation of SMSFs fell to 5027 in the 2018 financial year, the most recent figures available. In the prior two years net creations were 17,047 and 20,511.
While figures for total SMSF contributions are not available for the year to June 30, they did grow 22 per cent to $18.36 billion in 2016-7. However that seems likely to have been driven by wealthy people putting assets into their funds before tougher contribution rules were introduced.
The rate of contributions appears to have tumbled since then as SMSF assets grew only 1.7 per cent to $747.6 for the June year. While they have been the largest sector by assets, this position looks like it will soon be overtaken by industry funds.
What to expect
It is difficult to say whether the move away from retail funds will be a long term phenomenon.
Given the changes in contributions it appears that a significant number of people have joined industry funds and are likely to stay given the overall outperformance of the sector.
“Industry funds have the march on this in relation to new entrants,” said Ian Yates.
However Ian Fryer said while retail funds are on the decline they do have a core membership that will continue.
“Some employees, particularly in management, are not covered by modern awards (which usually default into industry funds). They are often in MySuper (default) options which are retail funds,” Mr Fryer said.
As for membership of SMSFs, “motivations there are complex” and there is a flow back to them from other funds at retirement. “some industry funds are concerned that well-off people transfer over to SMSFs in pension mode so they can have more control of the assets,” Mr Yates said.
– The New Daily is owned by Industry Super Holdings