Total assets in the Australian superannuation market surpassed $2 trillion in March 2015. The ever-increasing pool of retirement savings is famously larger that Australia’s GDP – and projected to hit $3.4 trillion by 2028.
The growth is locked in by the superannuation guarantee, which ensures that 9.5 per cent of working Australians’ salaries (rising to 12 per cent by 2025) ends up in the system.
With a few exceptions, APRA-regulated Australian superannuation funds outsource their funds management to external providers. The competition for investment mandates is fierce with more and more overseas funds managers eying access to the Australian market.
Money managers that specialise in global equities are particularly interested in Australian superannuation – particularly given the size of the superannuation industry compared to the domestic stock market.
The superannuation system in Australia is divided into the not-for-profit sector (dominated by so-called ‘industry funds’) and the for-profit bank-owned retail sector.
The industry fund sector has typically outperformed the retail fund market when it comes to returns, but the new MySuper regulatory regime could see things change. Retail MySuper funds are some of the cheapest in the market when it comes to administration and investment fees.
Superannuation fees have been placed firmly in the spotlight as part of David Murray’s Financial System Inquiry. Mr Murray has recommended that the current default fund selection process be replaced with a Chilean-style tender system by 2020 unless fees come down. This could see superannuation funds using more passive management in an effort to keep costs down, as is already the case with retail MySuper products.