Like many countries, Australia has a compulsory savings system in an attempt to ensure individuals have adequate retirement savings to provide income when they’re no longer working. It’s called Superannuation or ‘Super’ for short; currently a minimum of 9.5% of our pre-tax salary is directly contributed to Super. Individuals can voluntarily contribute more of their pre or post tax income if desired (many on higher tax brackets elect to contribute before tax earnings, as Super contributions are taxed at a flat rate of 15%, much lower than the higher income tax brackets). There are now several types of ‘Super’ funds available, with the three main types being:
- Industry Funds which generally have lower fees than Retail Funds (approx. 0.76% p.a. vs 1.61% p.a.) and are run by employer associations and/or unions,
- Retail Funds or Wrap Accounts run by a financial institution or advisor and
- Self Managed Super Funds (SMSF) which are run by individuals (sometimes with the assistance of an adviser) and typically have higher flat fees such as reporting/compliance costs, but allow for the most flexibility. The fees reduce as a percentage of total funds invested but for small fry investors like myself, SMSF’s management and compliance fees are to expensive to make them viable although at amounts of $200,000AUD and more they can be competitive.
Some Industry Funds have started providing ‘Member Direct’ accounts which for a slightly higher (flat) fee allow for individuals to direct their own investment choices with much more detail, which I may transfer my funds to when the balance reaches approx. $50,000AUD.
I’ve been a member of various Industry Funds in the past (HESTA, UniSuper, Military Super) each of which I felt performed satisfactorily over their lifetimes. I changed to a Wrap Account managed by a financial adviser and negotiated lower fees, although the fees have crept up in recent years, and are now slightly below average of a standard Retail Fund. The bi-annual report I receive doesn’t give me an adequate idea of the funds performance, so I’ve started tracking performance myself, in an excel spreadsheet using a time-weighted return.
I started working at age 19 and have been contributing the minimum 9.5% along with several post tax contributions which qualify for the government co-contribution.
Figure 1 below shows the performance of the Wrap Account since inception in May 2011. The total value of my Super funds at July 2015 was $29,021AUD.
Figure 1. Growth of $10,000 invested in the Wrap Account
And Figure 2 below shows the composition of returns; approx. 52 per cent of the funds return is from income (investment and cash account).
The return since inception in May 2011 to end July 2015 was 7.60% p.a. with a 3 year compound return of 11.98%p.a. According to research group Chant West, this is about average (their figures are for FY to June 30 2015).
Returns for previous years were:
2014 was disappointing and a significant under-performance relative to the median Industry and Retail Fund. 2012 and 2013 represent meaningful out-performance and average performance respectively.
I’ll be tracking the Wrap Account’s performance monthly, and reporting it Quarterly here. One reason for this is of course, if under-performance becomes a trend I may look at returning to an Industry Fund (which will at least charge lower fees) and/or manage my retirement funds myself.