5 super myths busted

By Cameron Micallef

January 29 2021
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As the debate around superannuation continues, a research firm has weighed in, challenging some of the commentary around the performance and outcomes of compulsory superannuation.

Chant West’s general manager, Ian Fryer, believes the attack on the superannuation system is "ideology based", and called for stakeholders to base their future responses on facts rather than political motives.

“Some of the recent critical commentary on super doesn’t seem to align with the facts,” he said. “If we look at the relevant data to validate that commentary, it tells a very different story.”

Mr Fryer highlighted that scrutiny on the sector is important to improve aspects of the system. However, he believes the government needs to ensure the issues are addressed in a way that doesn’t simply create other problems for funds or, more importantly, for fund members.

‘Our super system is a failure, it makes people worse off’

Comments surrounding The Retirement Income Review submission from the Self-managed Independent Superannuation Funds Association (SISFA) labelled superannuation a failure without proper intervention that addresses long-term sustainability, fairness and adequacy, Mr Fryer said.

A statement submitted by SISFA highlighted that “instead of two-thirds being dependent to some degree on the age pension, the aim should be to have two-thirds of Australians reliant on their own savings”.

However, Chant West pointed to the long-term performance of the median superannuation funds, which have returned on average 8 per cent p.a. since 1992.

“Even when you look at the past 20 years, which includes three major sharemarket downturns, the median growth fund has returned 6.3 per cent p.a., which is still ahead of the typical real return objective. And these returns have been delivered through a concessionally taxed system that adds even greater value for members,” Mr Fryer said.

‘Owning a home is the best, fastest path to financial security in retirement’

Ministers including Liberal MP Tim Wilson have been advocating for Aussies to buy their own home instead of having a lump sum in superannuation.

Mr Wilson previously said on Twitter: “Aiming to buy a first home and struggling to save the deposit? For 4 more days you may be able to access your super savings now to bring a purchase forward: earlier & cheaper. #HomeFirstSuperSecond – you’ll have a better life & a better retirement.”

While the Retirement Income Review recognised the importance of owning a home, Chant West highlighted that it will lead to asset-rich but income-poor retirees if the focus is solely on home ownership.

“I think the super industry has a role to play in helping members better understand how home ownership and super can work together to achieve financial security in retirement,” Mr Fryer said.

‘Costs incurred by Australian super funds are some of the highest in the OECD’

Commentary continually states members are paying too much in superannuation fees, when compared with overseas systems.

However, Chant West pointed to the latest OECD data (2018) showing that Australia’s administration costs at 0.4 per cent of assets is on par with other leading retirement income systems such as Canada, Denmark and Finland.

‘There’s been a 13.6 per cent increase in the average MySuper fee on a $50k balance since 2014’

While comments surrounding the high fees in MySuper products, Mr Fryer believes this claim is a bit disingenuous as it ignores the introduction of a new fee disclosure regime in 2017 that required the disclosure of a wider range of costs than required previously.

“When we account for the change in disclosure requirements, administration fees are the same as 2014 and investment fees have actually fallen by 12-15 per cent since 2014,” he said.

‘$30 billion was paid last year in super fees, more than the $27 billion on electricity bills, $12 billion on water bills’

Mr Fryer said while it is true superannuation fees top electricity and water bills, he pointed to what members gain.

“It’s always dangerous to simply look at the cost of any service without considering the benefits it generates,” he said.

Mr Fryer explained APRA-regulated funds, which represent about two-thirds of fund assets, accepted $120 billion in contributions, paid out $110 billion to members and typically generate over $100 billion in investment income each year (after investment fees and costs have been deducted),

“The benefits generated by the super industry are far greater than the costs incurred,” Mr Fryer concluded.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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Retirement