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Superannuation

I was recently reading the Cooper report on superannuation in Australia and several things jumped out at me from this report. Several are quite telling in what they reflect about peoples capacity to make long term informed decisions and several about the investment industry itself.

According to the Cooper Review the average superannuation balance in Australia currently stands at $70,000. Since this figure is an average we have to treat it with the caution that you always  treat averages with. However, even though the figure has undoubtedly been dragged down by large numbers of very small superannuation balances it is still a telling figure and reflects a profound disengagement with the process of managing ones affairs.

The notion of she’ll be right still infects the thinking of Australians with many still believing that they can rely upon the old age pension to provide for them later in life. According to the RBA some 70% of retirees receive some form of Government support during retirement.

The other aspect of the Cooper report I found interesting was the attitude of people towards superannuation as an investment vehicle. Some 40% of those surveyed have less confidence in superannuation and only 55% believe that superannuation is a good way to provide for retirement. Interestingly, 10% would stop contibuting immediately to superannuation if they could.

These figures have been interpreted by many in the funds management industry to be a reflection of investors themselves. That is people do not adequately understand that investments have volatility and at times go down. This is typical blame the victim. I think that what these attitudes reflect is that it is not that people are surprised by volatility but rather they are surprised at the fact that the people managing their superannuation are actually so poor at it.

Consider that APRA has analysed the returns of the nations 200 largest superannuation funds and found that the average return for the past 10 years was 3.9%. With some $282 billion tied up in funds that delivered below average performance for the past five years. To put this into context this average return is below the average cash rate for the same period. You would have done better simply leaving the money in a CMT . You would also have avoided the fee’s charged by managers to be ordinary.

 

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