According to Superratings, 2019 was the best year for the industry since 2013, with the median balanced option returning 13.8 per cent.
However, funds are already battling the new normal of lower yields and returns, which will make repeating 2019’s result in 2020 unlikely.
This year, the industry is tipped to see further fund consolidation as more funds seek to achieve greater scale.
“A key driver of mergers will be the sustainability of operating expenses, which, as the chart below shows, is a challenge for some funds across all size categories,” Kirby Rappell, executive director at SuperRatings, noted.
“Though smaller funds are more likely to have a high cost per member (CPM) and management expense ratio (MER), which measure the operational costs of the fund relative to its size,” he said.
“With the increased regulatory scrutiny on the sector, funds are focused on the challenge of increasing scale and driving down fees.”
However, there remains a number of providers who are struggling to deliver sufficient value for money, and the industry’s ability to address this is critical.
APRA released its MySuper Heatmaps in December 2019, which highlighted laggards based on investment returns, fees and sustainability metrics, and has emphasised a tougher approach going forward.
APRA also now has stronger powers to force underperforming funds to merge, which is likely to further drive consolidation across the industry.
What do members need to do?
The superannuation adviser acknowledged that poor-performing funds have no place in the system, but noted that members need to look beyond the raw returns.
“Focusing purely on returns as a measure of a fund’s success ignores a range of factors, not least of which is the level of risk involved in generating that return,” Mr Rappell said.
The superannuation expert believes members need to take a balanced approach when looking at superannuation funds.
“Looking at past performance can be useful when picking the right fund, but it shouldn’t be the sole criteria,” Mr Rappell said.
“For one thing, past performance is no guarantee of future performance, but there are many factors members should take into account when assessing a super fund, including insurance, governance, member services and, of course, fees.”
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