No wonder people aren’t engaged with their superannuation and don’t pay attention. For young people like myself there are most likely going to be another 100 rule changes before we can access our superannuation and here comes another set of proposed changes.
Political powers are now discussing the Productivity Commission’s idea of creating a panel that will judge the top ten superannuation funds. This idea was originally contained in the Productivity Commission’s draft superannuation report released in May last year and further developed by PC Wonks and their advisers for a final report released on 9 January.
And today we are going to get Royal Commissioner Kenneth Hayne’s contribution to this debate.
Given he was presented with a copy of the Productivity Commission’s report before Christmas, here’s hoping he puts the blowtorch to the idea of creating some super best-in-show selection panel.
The idea of creating a list of ten superannuation funds that become the default destination for worker superannuation savings just does not stack up. There are a lot more than ten good superannuation funds out there and a whole lot of cruddy ones that should have been wiped out years ago.
When assessing superannuation most people look at fees and returns, but there are other important factors which should be included. They include transparency, investment risk, consistency, insurance offerings, administration, and complaints resolution process handling.
The issue with such a list is that performance is most likely to be a driving factor in making the top ten. As any experienced investor can tell you, last year’s winners are not necessarily next year’s winners.
We continue to see people repeatedly chasing returns such as bitcoin or property in mining towns during the boom, only to get burnt a few years later. Dare I mention industry superannuation funds chasing infrastructure hard in a low-interest rate environment, or recalculating risk definitions so you can claim high-growth funds are balanced. Humbug aside, artificially creating demand, even creating demand for a good-quality investment can inflate its price and make it more vulnerable to downturn when the sentiment turns.
Creating a top ten of superannuation funds will create an artificial elite pool of funds based on the choices of a group of people chosen one way or another by Canberra. Creating such a list is likely to influence the flow of capital into a small select number of funds, impacting the way these funds can invest capital. Already the bigger funds are having to alter the way they invest money due to their massive scale. This will ultimately diminish long-term returns.
For example, allocations to Australian small companies may be non-existent in larger funds as the funds cannot hold meaningful positions that impact the overall return.
If we were to assess government performance in the same manner over the past decade, they would certainly be outside the top ten. Their costs to run the political system is exorbitant, the waste to the country over the top, the return on taxpayer’s funds dismal, and transparency in the system pathetic. Overall, I would give the government a rating of one out of ten for effort. Maybe we should have a panel that gives us the top performing politicians and we can reduce our political overheads?
Examples of dud funds aside, choice with an open and competitive market leaves Australians with one of the best retirement systems in the world. It needs tweaking, not wrecking.
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This article was published in The West Australian’s Your Money section.