Alarmingly, around $10 billion of Australians’ retirement savings are invested in dud products but many wouldn’t know the “harm” they are suffering.
A new report has revealed that Australians who remain invested in underperforming superannuation funds, also known as "dud" funds, could potentially miss out on up to $230,000 at retirement. According to data from the Australian Prudential Regulation Authority (APRA), approximately $10 billion of Australian retirement savings are invested in such products. The report shows that two-thirds of the products that are closed to new members are poorly performing, and a significant number of Australians are unaware of the negative impact they are experiencing.
Although stopping underperforming funds from taking on new members is not sufficient to help those already in these funds, Industry Super Australia suggests that the government needs to upgrade consumer protections. APRA's heatmaps have been introduced to identify underperforming funds and encourage members to switch. Eight-year returns on funds are displayed, with ANZ's OneAnswer Personal Super fund option being identified as the worst performer over the eight years to June 30, 2022, with returns of negative 0.003%. Other funds that are providing poor returns include Colonial First State, BT Retirement Wrap, Energy Industries Superannuation Scheme, and Equity Trustee. Some consumers are also paying higher fees, with the average annual administration fee for members with an account balance of $50,000 in closed choice products being $225, compared with $149 for open products and $137 for MySuper products.
The analysis of choice super fund options found that four are delivering negative returns, 48 are charging "significantly high" fees, and 80 are performing very badly, yet 49 of these products are still accepting new members. Industry Super Australia's deputy chief executive, Matt Linden, emphasises the need for more to be done to connect members to high-quality super funds, as many disengaged members are left languishing in "dud" funds. While the government needs to upgrade consumer protections, the funds themselves also have a legal duty to act in the best interests of their members.
Super Consumers Australia's director, Xavier O'Halloran, criticises the regulator's performance heatmaps for not covering a significant part of the market, including options sold through platforms and to people in retirement, and calls for more public scrutiny and repercussions for poorly performing products in the superannuation market.
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