It also found that among “Choice” options, just about all of the underperformers were retail funds.
The latest research, commissioned by the Australian Institute of Superannuation Trustees, which represents not-for-profit funds, included a poll of more than 500 retail fund members, as well as face-to-face discussions, to explore their super decision-making processes.
While the research concerned retail fund members, it is likely a survey of industry fund members would find a similar a lack of financial literacy when it comes to their super, experts say.
Alex Dunnin, executive director of research and compliance at researcher Rainmaker, says the results show that all super funds – both industry and retail – need to do a better job to communicate more simply and effectively with their members.
“Those retail fund members who don’t appear to trust or believe the industry fund story… could be costing themselves big money in foregone superannuation savings,” Dunnin says.
Among other surprise findings was more than half of those in retail funds think they have to work in a specific industry to join an industry fund, despite most industry funds being open to all investors.
Get basics wrong
Peter Lewis, director at Essential Media, which conducted the survey, says it was striking how many fund members showed little appreciation of the trial causes of differences in investment returns.
He says the research found that those who are most confident about their super were among the most likely to get the basics wrong.
They tended to assume super funds performed similarly over the long-term, as they each had similar levels of expertise in terms of deciding where to invest, and that differences in the shorter term were partly due to luck.
A spokesperson for the Financial Services Council, which represents retail super funds, says generalisations should not be made when comparing industry and retail funds.
“There are many sound, well-performing retail funds and there are many poorly performing industry funds,” the spokesperson says.
While most workers can choose who manages their super, the spokesperson points out that there are up to one million people who cannot exercise super choice.
They include those who work under an industrial award, where compulsory super contributions can only be paid into a fund specified by the award.
Eva Scheerlinck, chief executive of AIST, says the results show there needs to be a uniform super comparison tool so that everyone can see how their fund stacks up against its peers.
The waters are muddied by a tendency for vested interests to skew data to paint their sector, fund or product in the most flattering light.
She says fund members need reliable and accessible information to help them make better-informed choices.
“It should be provided by an independent and trustworthy source, such as a regulator, where consumers could see comparative returns over 5, 7 and 10 years and the fees,” she says.
However, Helen Rowell, deputy chair of the Australian Prudential Regulation Authority, said in a speech in March this year that acquiring the information and presenting it in a way that balances accuracy and simplicity is “extremely challenging”.
“The waters are further muddied by a tendency for vested interests to skew the data to paint their sector, fund or product in the most flattering light,” she said.
The survey suggests some fund members are taking the warning that “past performance is no guide to future performance” too literally and think there is no point in comparing funds.
However, Ms Scheerlinck says although past returns have to be treated with caution, they are “not meaningless.”
Choosing a fund will depend on several factors, including risk tolerance of the fund member, she says.
That means not everyone will want to be in the highest-returning performing fund if, for example, there’s a lot of volatility in over the short and medium term in achieving those higher long-term returns, she says.
Writes about personal finance for The Sydney Morning Herald and The Age.