Australians’ retirement savings have delivered a return of just 3 per cent a
year over more than a decade – about 50 per cent less than the return on
cash in the bank – an investigation by the ABC has found.

That is barely ahead of inflation which averaged 2.8 per cent over that
period and 3.1 per cent over the past 10 years – implying that system-wide
retirement savings have achieved virtually no growth in real terms.

“It’s not just bad for people’s pensions” said Dr Mike Rafferty an
economist from the Workplace Research Centre at the University of Sydney.

“At a 3 per cent return it’s an absolute economic travesty because that
money could be put to much better use.”

The ABC has analysed official statistics from the Australian Prudential
Regulation Authority (APRA) on superannuation assets and contribution flows
that go back as far as 1997.

In the 13 years to mid-2009 the superannuation system delivered an annual
compound return of 3.04 per cent.

The system-wide returns are significantly less than the money could have
earned had it been placed in effectively risk-free investment vehicles such
as Australian bank term deposits or Australian government long-term bonds.

Cash in a bank term deposit would have delivered about 4.5 per cent a year
on average over that time.

Ten-year Australian government bonds would have delivered an average return
of 5.75 per cent.

The extremely poor returns on workers’ money garnished under the
superannuation guarantee charge raises serious questions about
superannuation’s efficacy as a vehicle for retirement savings.

The ABC’s analysis shows that although the total assets in the
superannuation system have almost quadrupled since 1997 the vast bulk of
the growth has merely come from net contributions – workers’ money going
into the system – not the money making money.

“As an economist I think I would say it’s a scandalously inefficient way of
delivering retirement security” Dr Rafferty said adding “and it’s also a
scandalously inefficient way of saving money at all”.

Returns on the major balanced super funds (with a mix of Australian and
overseas shares property bonds and cash) have delivered an average return
of about 4.5 per cent over the past decade according to credible
superannuation analysts such as SuperRatings and Chant West.

In practice that translates into a median return barely ahead of inflation
for so-called retail funds run for profit which tend to charge higher fees.

Returns have been significantly higher for industry corporate and public
sector superannuation funds not run for profit and with lower fees.

But the returns on so-called major balanced funds – low as they are – mask
the far poorer performance for the superannuation system as a whole.

The system-wide returns are dragged down by funds with very high fee
structures poorly performing schemes and tens of millions of lost or
inactive accounts that no longer attract contributions that continue to have
their balances eroded by annual fees.

Volatile markets and a perfect storm of financial crises have brought down
the returns on superannuation.

The period in question was bookended by the Asian financial crisis and the
global financial crisis and punctuated by the tech wreck of 2000 and the
market ructions in 2002-03 from the accounting scandals at Enron and
WorldCom.

But market volatility cannot be entirely blamed for the poor returns –
someone investing their money in Australian equities over this time would
have achieved an annual return more than double inflation at 6.6 per cent.

The returns have also been eroded by a sizeable slice of fees taken from
superannuation all the way along the line.

“It’s a $1.2 trillion industry and out of that there is about $17 billion in
fees that are stripped out of it every year” said Jeff Bresnahan managing
director of SuperRatings.

“Quite simply $47 million $48 million a day coming out of our
superannuation accounts to pay suppliers for managing that money.”