Superannuation funds need to simplify their investment menus, given that over a third of funds have more than 30 options on offer and many of them are “arguably sub-scale”, a report by one of the world’s largest professional services firms says.
“Achieving scale is a key factor for improved member outcomes, as it allows for greater efficiencies and reduced costs,” Mercer says in its report on Australia’s superannuation system.
Many super funds offer investment options that do not have enough investors to be worthwhile.Credit: Jessica Shapiro
The report shows that as of 30 June 2023, about 30 per cent of investment options offered by super funds held less than $5 million in assets under management.
Earlier this year the Australian Securities and Investments Commission (ASIC) said super funds and financial planners were not doing enough to ensure that fund members were not in poorly performing investment options.
ASIC’s concerns were centred on “choice” options – those fund members choose themselves.
Much of the money choice options are held by those who are advised by financial planners, many of whom are retirees. The options tend to be those offered by retail super funds rather than not-for-profit industry funds.
To get to grips with investment options it is necessary to understand that growth assets, such as shares and property, are expected to produce higher returns over the long term than defensive assets, such as fixed interest and cash.
Traditional diversified balanced options typically have exposure to growth assets of about 70 per cent, with the remainder in defensive assets. These are the default options, which must be simple and low-cost, for those who do not choose a fund when starting their first job.
Many funds have a type of default option called “lifecycle” options, where those in their 20s have a very high exposure to growth assets – usually about 90 per cent.
Super funds urged to axe ‘sub-scale’ investment options
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02.04.2024
Superannuation funds need to simplify their investment menus, given that over a third of funds have more than 30 options on offer and many of them are “arguably sub-scale”, a report by one of the world’s largest professional services firms says.
“Achieving scale is a key factor for improved member outcomes, as it allows for greater efficiencies and reduced costs,” Mercer says in its report on Australia’s superannuation system.
Many super funds offer investment........
© The Sydney Morning Herald
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