Super Fund Performance News 2020-21

Key points

  • Default MySuper products have just delivered an average 18.8%, their best performance in 34 years.
  • Driving the returns were stunningly high returns from equities and property.
  • The best super funds achieve investment outcomes double or triple those achieved by the lowest performers.
  • MySuper lifecycle investment products designed for young fund members significantly outperformed diversified single strategy MySuper products.

The Rainmaker MySuper investment performance index ended the 2020-21 financial year with an annual average return of 18.8%, its highest return in 34 years. This was a massive turn-around from the previous year when the Rainmaker MySuper Index returned just -0.9%.

Not only this was a great recovery story, but it is only the third time the annual financial year return was above 15% in the last three and half decades. This was an impressive outcome considering investment markets in and outside Australia have still not shaken free of COVID-19.

The story gets even better over the medium and long term. MySuper index returns over three years were 8.0% p.a., over five years were 8.6% p.a. and over 10 years returns were 8.3% p.a. The ultra long-run story was just as impressive: 6.2% p.a. over 20 years and 7.2% p.a. over 30 years. This means the average MySuper default superannuation investment option is delivering almost five percentage points per annum above the long-term inflation rate, significantly bearing even their most optimistic investment objectives.

While these figures reflect average returns across industry, choosing a high performing superannuation product is still the key to securing your retirement nest egg. Demonstrating this difference between average fund and the highest performing fund, while members in an average fund have more than doubled their account balance in last decade, members of the top funds would have seen their balances triple.

  Performance test
In 2021 the government introduced a superannuation fund performance test. The government designed the test, which is administered by the superannuation regulator, the Australian Prudential Regulation Authority. The test currently applies only to MySuper products and measures the extent to which the product beats its asset class benchmarks over the past seven years. In 2022 the test will measure this value-add over eight years.

In September 2021 MySuper products were told whether they passed or failed. The 13 products that failed have already told their members. If they fail again in 2022 they will not be allowed to accept new members.

  Asset class returns
Superannuation funds invest across a mix of asset classes primarily categorised as growth or conservative, depending 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. This year's spectacular returns for MySuper, diversified and asset class specific sector products were mainly driven by high returns in three asset classes: Australian equities, international equities and property.

Superannuation investment options invested into Australian equities earned 26.9% in the financial year, international equities 28.0% and property 21.3%. The other asset classes in the mix were Australian bonds, international bonds, and cash, all earning returns of less than 1.0%, with Australian bonds actually going backwards.

Comparing the average return in each sector or asset class with their market peer index return adds a new angle to the story. It shows that as high as some of the returns were, superannuation funds still on average matched the market or outperformed in international equities, property, international bonds and cash but under-performed in Australian equities and Australian bonds. This reminds us that even with record breaking investment performance, super funds' investment performance may not always be as high as it could be.

It is worth noting, however, that this is an improvement over the 2019-20 financial year when the asset class performance gaps between the superannuation asset class averages and their index returns were much higher than they were this financial year.

These asset class investment outcomes mean that growth products with high exposure to equities and property achieved an average 22.6% return in 2020-21 compared to the 16.6% achieved by the average balanced product. Conversely, capital stable products that hold a larger proportion of their assets in conservative investments like fixed interest bonds and cash achieved average returns of 9.0%.

The same pattern held up over 10 years. Growth products averaged 9.2% p.a., balanced products 7.8% p.a. and capital stable products averaged 5.4% p.a. MySuper products, as expected, delivered 10-year returns of 8.3% p.a. 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.

Returns in each asset sector, to June 30, 2021
(Percent returns after all fees, p.a.)
  1 yr 5 yrs 10 yrs
MySuper/Default option 18.8% 8.6% 8.3%
Growth 22.6% 9.6% 9.2%
Balanced 16.6% 7.8% 7.8%
Capital stable 9.0% 5.0% 5.4%
Australian shares 26.9% 10.4% 8.6%
International shares 28.0% 12.6% 11.2%
Property 21.3% 5.5% 8.2%
Australian fixed interest -0.4% 2.1% 3.5%
International fixed interest 0.5% 2.3% 3.7%
Cash 0.0% 1.0% 1.8%
Long-term super returns, as at 30 June 2021
(Percent returns after all fees, p.a.)
Years 1 5 10 15 20 25 30
Per cent pa 18.8% 8.6% 8.3% 6.1% 6.2% 7.0% 7.2%
  Best versus the worst
While these impressive 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 2020-21 while the average MySuper product achieved 18.8%, the best achieved 26.5% and the worst achieved 12.8%. This is a range from best to worst of 13.7 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 10 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, ie. 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 9.6% p.a. But if you were in the lowest-performing fund every year your 10-year return would be just 4.8% p.a., exactly half.


Long term super fund returns - default mysuper

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, i.e., as you get older the more conservative 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 like 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 conservative asset classes like fixed interest and cash.

This year, unlike last year, was very good for lifecycle investment products. Lifecycle investment options for young members with heavy emphasis on equities were able to reap big benefits from the stock markets' high returns, earning substantially higher returns than the members in regular diversified single strategy MySuper products that invest the same way regardless how old are the members of the fund. While single strategy MySuper products earned an average 17.4%, lifecycle products for people aged under 50 years earned an average 21.8%.

For members aged 50 and above the average MySuper lifecycle option returned 14.3% mainly due to shift of asset allocation from growth to conservative, reason 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.


MySuper lifecycle investment returns 2021

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Further Reading