Jessica Irvine, National Economics Editor
News Limited Network
October 08, 2012

MORE than six million Australians would have been better off stuffing cash under a mattress than putting it in their employers’ default superannuation option over the last five financial years.

Today News Limited reveals the worst and best performing super funds in Australia over the past decade and the true cost of our inaction on super. Most Australians make no active choice when it comes to super; the majority (60 per cent) have their super paid automatically into the default investment option of their employers chosen superannuation fund.

Thanks to the battering of the global financial crisis, every dollar invested in a typical default fund went backwards, after fees and taxes, by 0.3 per cent a year on average over the past five financial years, according to data from SelectingSuper, a service of research group Rainmaker. Of the 83 default super options available over the five years, 51 delivered negative annual returns for members (6,066,129 member accounts) and 32 delivered positive returns (10,179,634 member accounts).

”The past decade, and the time since the global financial crisis especially, has been a train wreck for super funds,” Alex Dunnin, head of research at Rainmaker, told News Limited.

But the SelectingSuper figures show choice of fund is crucial, revealing large and persistent divergences across fund performance. The top performing default option REST Industry Super – delivered an average annual return of 6.7 per cent, after fees and taxes, to its nearly 2 million members over the decade.

The worst performing default option – Connelly Temple Employer Super – returned just 2.5 per cent a year to its 20,551 members. So $10,000 invested in the worst fund a decade ago would be worth $12,800 today, but the same amount invested in the best fund would be worth $19,100 – a potential $6,300 windfall just from being in the best fund.

”We’re spending all this money on super, but if you’re in a dud fund, you’re basically just pissing it up the wall,” Mr Dunnin said. The industry’s mantra that ”past performance is no guide to future performance” was not true, Mr Dunnin added.

In fact, Australians could gain a lot by comparing funds according to their longer term return over five or ten years and switching to the better performing funds.”It’s like footy teams. If you’re consistently down the bottom of the league table then you’re probably not going to win the championship the next year. Funds that are below average tend to stay below average.”

The chief economist at CommSec, Craig James, said it was important not to make knee-jerk reactions to market downturns. But, in theory, a person who had withdrawn money from their default super fund and put the cash under their mattress would at least have preserved the face value of their money. ”Not that this is a recommended strategy, but with the benefit of hindsight, some one who did that wouldn’t have been any worse off, perhaps slightly better off.”

Mr James said Australians would have to get used to more modest superannuation returns. ”I think perhaps in the past we had become too accustomed to super normal returns and expecting they were going to last forever. Really, when you think about investing for retirement, the bulk of those savings will be provided by your own hard work.”

Luck on Jo’s side

BUSY mother of two, Jo-Anne Lloyd, 41, credits luck, rather than financial wizardry, for her investment over the past decade in Australias top performing super fund. The former Just Jeans employee says it was not her decision to be placed into REST Industry Super formerly the Retail Employees Superannuation Trust but now open to the public which has returned 6.7 per cent a year, after fees and taxes, over the past decade to the nearly 2 million members invested in its default option. ”I was with REST when I worked with the Just Jeans Group from 2001. I just let them do it automatically for me.”

However, over time, she realised the benefits. ”Two to three years ago, I had all these other super funds combined into REST because I did not notice they charged the least fees and they’d lost the least amount of money as well. I’m not surprised they’ve done really well.”

Like most mothers, Mrs Lloyd – of Gosford on the NSW Central Coast – is concerned about what impact taking time out of the workforce to have children will have on her super. ”Because I have been out of the workforce for a while it does concern me that I’m not contributing to super at the moment. I’ve got a three-year-old and a seven-month-old. I’m not planning to go back to work for at least three years. ”At least I know that the small amount that there is in there is being looked after properly.”

Steven Patruno – Dreaming of an early retirement

ONE WEEK shy of his 37th birthday, Steven Patruno has been thinking more about his superannuation lately. The chef and owner of Friends of Ours cafe in Essendon, Victoria is looking forward to a long and comfortable retirement. ”I definitely think I will be retiring at a young age.”

Fortunately for Mr Patruno, he has been invested in one Australia’s top performing superannuation funds for the past decade, HostPlus, which has returned 6.3 per cent per year, after fees and taxes, to the one million members in its default option. ”There are a lot of people charging a fortune – they charge a lot of fees – whereas HostPlus are extremely reasonable,” Mr Patruno said, with two decades of experience in the hospitality industry, Mr Patruno places a high value on service.

”I love hospitality. I have been doing it for over 20 years. I enjoy the people; I enjoy spending time with our friends and customers.”As a small businessman and employer of twenty staff, Mr Patruno says he thought carefully about his choice of a default superannuation fund for employees. ”With my staff, I love my staff. I look after them. They look after me. I know they’ll get looked after with HostPlus.”

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