How super performed in 2023

good super guide 2023 super performance

This year was a tough year for super fund investment returns as the world's capital markets battled the onset of inflation and Russia's war against Ukraine.

  • Default MySuper products have had another stellar year returning 9.3%, after rebounding from the -3.9% annual return in 2021-22.
  • Super funds average nearly 8%pa returns over the past 40 years.
  • The best super funds achieve investment outcomes two to three times higher than those achieved by the lowest performers.
  • MySuper lifecycle investment products outperformed MySuper single strategy products for younger members.

The Rainmaker MySuper investment performance index had a splendid finish to the 2022-23 financial year with an annual average return of 9.3%.

This was a huge rebound from the previous financial year when the Rainmaker MySuper Index returned -3.9%, their lowest performance in 13 years.

Like any other diversified investment option, the Rainmaker MySuper index's strong performance was a combined effort from all the various asset classes working their magic together.

The returns were driven by strong results from Australian and international equities and positive results in Australian bonds, infrastructure, and cash. Showing how strong, the Australian share index delivered 14.8% in 2022-23 and international shares delivered almost 16% globally.

The US sharemarket delivered an even better 24% result.

Superannuation, however, is about the long term, where the story gets much better. MySuper index returns over three years were 7.8%pa, over five years were 5.9%pa and over 10 years returns were 7.5%pa.

The ultra-long-run story was 6.6%pa over 20 years, 6.7% over 30 years and 7.9%pa over 40 years.

While these figures reflect average returns across the whole superannuation industry, choosing a high performing superannuation product is still the key to securing your retirement nest egg.

Demonstrating this difference between an average fund and the highest performing fund; while members in an average fund have more than doubled their account balance in the past decade, members of the top funds would have seen their balances triple.

Asset class returns

Superannuation funds invest across a mix of asset classes primarily categorised as growth or defensive, depending on whether they hold lots of equities and property or are tilted towards fixed interest bonds and cash.

The returns they achieve as a rule generally reflect the combined returns of these asset classes and how each fund mixes them together.

In the most recent financial year, every asset class recorded a positive return, and some posted a double-digit return.

The average superannuation investment option invested into Australian equities earned 15.0% in the financial year, 16.2% for international equities earned and 0.2% for property.

The defensive asset classes weren't as strong as growth assets as Australian bonds, international bonds and cash investment options all averaged 0.2%, 0.0%, 2.5% respectively.

Despite the high MySuper returns in the FY, comparing headline sector medians with their corresponding market indices reveals super funds to on average have underperformed their market indexes, especially for their best performing asset classes.

Super funds as a group underperformed in international equities by 6.4 percentage points and by 1.1 percentage points in Australian equities. The only asset classes to outperform its peer index was Australian fixed interest.

These asset class investment outcomes mean that growth products with high exposure to equities and property achieved an average 11.0% return in 2022-23 compared to the 8.4% achieved by the average balanced product.

Interestingly, capital stable products that hold a larger proportion of their assets in conservative investments like fixed interest bonds and cash achieved reasonable average returns of 5.3%. The same pattern held up over 10 years.

Growth products averaged 8.2%pa, balanced products 6.8%pa and capital stable products averaged 4.3%pa. MySuper products, as expected, delivered 10-year returns of 7.5%pa that sat right between these growth and balanced sector averages.

Yet again, results like these show us why it is important to diversify your investments and focus on the medium to longer term - which is why most people hold their superannuation in a MySuper product or in a growth or balanced investment choice.

Best versus the worst

While these strong, long-term average superannuation returns are a reasonable benchmark of what members should be expecting from their superannuation fund, it is extremely important that you do not tolerate low-ranking returns, especially if they are sustained.

For example, in 2022- 23, while the average MySuper product achieved 9.3%, the best achieved 13.9% and the worst achieved 4.2%. This is a range from best to worst of 9.7 percentage points.

This gap comes about because each year the best performing superannuation fund usually achieves two to three times the return of the lowest-performing superannuation fund.

Viewed another way, during the past decade the average annual performance gap between the best and worst MySuper products was a staggering 3.2 percentage points.

This is many times greater than the range in fees between the cheapest and most expensive funds demonstrating why remaining a member of a low-performing, that is, low-ranking, fund is much more damaging to your superannuation savings than being in a fund charging excessive fees.

Showing how this works in practice, if you were in the top-performing super fund each year for the past decade you would have averaged 7.3%pa.

But if you were in the lowest-performing fund every year your 10-year return would be only half that at just 5.9%pa.

good super guide long term returns

Lifecycle investment returns Lifecycle MySuper products are those where the investment strategy is determined by the age of the fund member.

As members of these products get older, they are moved into sub-options specially designed for their age group, that is, as you get older the more defensive your asset mix becomes.

The idea behind lifecycle investing is that when members are young, they have many decades until they are expected to retire and should be investing more of their superannuation in high-performing albeit higher risk assets, such as equities and property.

As they get older and approach retirement, however, their tolerance for investment risk reduces so their exposure to equities and property is wound back in favour of more defensive asset classes like fixed interest and cash.

Even though the beginning of this year wasn't quite so good for lifecycle investment products, they ended the year on a positive note.

Lifecycle investment options for young members, with heavy allocation to equities, outperformed the regular diversified single strategy MySuper products.

While regular MySuper products earned an average 9.3%, lifecycle products for people aged under 40 years earned an average 10.9%.

For members aged 40 and above, the average MySuper lifecycle option returned 7.8%, mainly due to shift of asset allocation from growth to defensive, as they become more focused on preserving capital.

But it is at this stage of many fund members' lives when the power of compounding comes into play.

Though every positive return adds multi-folds to members' account balances, on the flipside, it hits harder when the returns are lower than they might expect.

These lifecycle investment return results mean that even if you choose a lifecycle investment strategy for your superannuation, it is still crucial that you compare its investment returns at least once a year. You should not take a set-and-forget approach.

good super guide mysuper life cycle investment returns

 Making sense of your super fund's performance
 How MySuper has performed for members