Aussie funds ranked 3rd in key Mercer/ASFA rating

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Australian super funds are delivering a retirement savings system ranked third best in the world, behind only the Netherlands and Denmark in terms of sustainability, adequacy and integrity, according to the latest Melbourne Mercer Global Pension Index (2017).

ASFA said, when releasing the latest results over the weekend, that misleading analysis led to “sensationalist newspaper headlines that only served to alarm Australians and detrimentally impact retirement outcomes”.

Far from lagging behind the rest of the world, the evidence is that Australian funds have delivered superior returns, the statement said.

  • Over five years to the end of 2017, Australian super funds had the highest average investment returns in the OECD.
  • Returns over the last five years averaged 10.4 per cent a year, 8.2 percentage points higher than the rate of inflation over the same period, after fees.
  • Over the past 20 years, funds have delivered 6.7 per cent annual returns, 4.1 percentage points higher than the rate of inflation over the same period, after fees.

Fees for managing superannuation fund investments were comparable to those in other countries with high levels of investments in equities.

“It is important to compare like with like when making fee comparisons. For example, investing in government bonds may come with a lower fee, but Australian super funds achieve high returns from unlisted infrastructure, property and other investments and these cannot be obtained by investing in indexed funds,” ASFA said in the statement.

“Furthermore, fees in Australia have reduced over the past five years following the introduction of MySuper and other reforms.

It is crucial to analyse replacement rates through the lens of sustainability. Historically Australia has had low replacement rates of income in retirement and this is largely due to the flat rate and means-tested Age Pension.”

  • Australia has the lowest public expenditure on income payments to the aged, at less than three per cent of GDP.
  • The OECD average is nine per cent of GDP.

Greece, Spain and Italy may have high replacement rates but this has proven unsustainable and led to social unrest as attempts are made to rein in costs.

“The Australian system is sustainable and is projected to remain so over the next 30 years, with superannuation progressively doing more of the heavy lifting, as budgetary constraints impact Age Pension entitlements. Superannuation has never been so important to current and future generations.

“Superannuation is working. An increasing number of retirees now have significant private income above the Age Pension, meaning they achieve a comfortable standard of living in retirement, rather than just getting by. With legislated increases in the Superannuation Guarantee, this trend will continue and by 2050, half of all retirees will reach the ASFA comfortable standard.

“The Australian superannuation system is one of the very best in the world and while there is always room for improvement, it is important to get the facts straight, because not doing so simply reduces confidence in the system, disengages the community and leads to worse outcomes in retirement,” ASFA said.

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