Myth 1:Industry funds are cheaper
Since the clean up on superannuation fees with the regulatory (RG97) changes last year, some of the industry funds are far above the average fee levels. For example, the HostPlus ‘MySuper'* option is $78 per year + 145bp (145basis points, or 1.45%), equating to $1,528 per annum for an average account size of $100,000. Given this is essentially the same product as the MySuper products offered by UniSuper and Australian Super, coming to $656 and $828 respectively, it is hard to justify the perception that if a fund is an industry fund, it is cheaper.
Myth 2: Bank funds are ‘safer.'
Contrary to the "big and safe" brand perception the banks enjoy still, their some of the most significant products are by far the weakest on performance. Colonial's FirstChoice for example, has returned 6.0% per annum over the past ten years, compared to 7.2% - 7.4% per annum for the three funds listed above.
Myth 3: Past performance is not indicative of future performance
Lawyers are only 50% right in their warnings about past performance. Past performance is indicative of future performance when that past performance is poor. 66% of the time over the past 15 years, looking at rolling 5-year returns, the worst performers looking backwards were amongst the worst performers looking forwards.
Myth 4: Good performance yesterday, means good performance tomorrow
While bad performance in the past tells us something, good past performance is not indicative of good future performance. Overwhelmingly, the data shows that good performance is not persistent. Yet the media, the productivity commission, and far too many focus on performance tables. If you had switched to the top performing fund at the start of each year, you would have underperformed the simple strategy of choosing the average low fee product.
Myth 5: MySuper is the cheapest option
MySuper is the default fund for any given fund manager and has the most straightforward fee structure. Consumers are led to believe MySuper, as the default, is the cheapest. Often this is not the case. As an example, the HostPlus MySuper option is one of the most expensive in the market. Similarly, Vision Super provides a MySuper product is $78 + 92bp per year. This trend continues across the retail platforms where the MySuper option is typically much more expensive.
The Royal Commission has commenced a journey towards unravelling the complexity, misinformation, conflicts and structural issues which characterise superannuation. Debunking the commonly held misconceptions and myths which surround super is an essential first step. But those myths were created won’t be easy to unravel. Every year the performance tables are rolled out and certain parties celebrate last year’s winners. Inadvertently or not, once again consumers are misled into believing that past performance is the most important guide when selecting a super fund. Industry funds collectively continue to promote themselves with the promise of lower fees, obscuring the reality that many of their MySuper funds are 20 -20% above the average cost.
· The super system must be changed for more education so consumers can defend themselves against misleading advertising, complex fee structures and performance promotions; more in-depth research to uncover the realities of performance versus cost; and greater transparency on how products are structured, priced and managed.
· Australians work hard and deserve to enjoy the fruits of their labour. They are not, by any means, stupid. It is time for the super industry to stop being so paternalistic. Empowering consumers with knowledge, giving them a voice in the conversation about their financial future, creating easier access to trusted advice and ensuring appropriate protection measures are in place are all imperative to creating a more certain pathway to prosperity for the nation.
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