The top performing default super options over the past decade

Editor's Note

If you pick your super fund well, you’ll only need to do it once.

And regulatory efforts to improve transparency around performance and fees means it’s getting easier to differentiate the superannuation leaders from the laggards.

Morningstar’s newly relaunched quarterly Superannuation Survey has revealed the performance of Australia’s default super funds over a 1-, 3-, 5- and 10-year period, ranking 115 MySuper options across the conservative, moderate, balanced, growth and aggressive superannuation categories.

I sat down with Morningstar’s director of manager research ratings Annika Bradley to dig into the results. What stands out, she says, is the consistent outperformance of the top funds.

“If you've picked well once, it's just a matter of monitoring and keeping on top of them because we are seeing them perform persistently well over longer timeframes,” Bradley says.

Who topped the tables?

The survey separates out 115 MySuper options from the more-than 600 multisector options. It’s a lot of figures to comb through and reflects a significant data uplift to Morningstar’s universe of superannuation options.

On average, all categories experienced negative growth over the past year, but Bradley says investors should take a long-term view.

“It's almost a case for investors who are in those funds be conscious that there will be short-term periods of underperformance.”

“You are seeing these higher quality funds, such as Australian super, Australian Retirement Trust perform well over long periods of time.”

But she stresses investors shouldn’t absent themselves from continual monitoring.

In the balanced superannuation category, Australian Retirement Trust’s Retirement Options dominated, delivering the highest returns over a 1-, 3- and 5-year period, and the second highest returns over 10 years. West State Super topped the list for 10-year total returns.

In the growth category, Care, ESSS and HESTA Super took out the top three positions for the year. Longer term, AustralianSuper, UniSuper and HESTA delivered the best returns over a 5 year period.

For the aggressive category, Australian Retirement Trust’s Balanced and Lifestyle Balanced Options, and HOSTPLUS’ Balanced Option outperformed the Morningstar index over the short and medium term.

Bradley says fees matter, although acknowledged they also play a role in determining an investment strategy.

“Fund fees are a very important indicator in terms of overall performance because there's that natural hurdle, if the fee is very large, it's a just an automatic drag on the returns.

“I would say though, depending on the investment strategy sometimes funds that are looking to access unlisted assets, looking to access Alpha, those things come with higher fees,” she says.

“So it's not as simple as saying you should go index with super low fees. It really comes down to what investment strategy you’re seeking, and sometimes if that investment strategy has multiple levers like trying to outperform the markets, or accessing private equity, unlisted infrastructure, there are higher fees associated with that than a pure index strategy.”

But what if the goal posts change? For some, it could present an opportunity.

Super tax changes - calls to close the gender gap

Around 80,000 Australians this week learned the tax rate on earnings from their super balances of more than $3 million will double to 30% from 2025. The higher tax only applies to earnings from balances above $3 million, they’ll still pay the concessional tax rate of 15% for accumulated funds below this threshold.

It’s not the first time the super rules have changed, and it won’t be the last. During the pandemic, almost 3 million people withdrew $36 billion from their retirement savings under the Coalition government’s early access scheme. The long term impact will be stark.

The latest changes affect far fewer people. Currently only around 0.5% of the population has a super balance of more than $3 million. But Treasurer Jim Chalmers doesn’t intend to adjust that threshold for inflation.

Analysis released on Friday by the Financial Services Council – which represents big retail super funds – shows a lack of indexing will result in 500,000 current taxpayers paying the higher tax rate.

“Leaving the cap stuck at $3 million will mean that in today’s dollars a 30-year-old will have a real cap of around $1 million,” FSC chief executive Blake Briggs says.

“Caps in the superannuation system are indexed to ensure generational fairness, so that each generation gets the same outcomes and benefits from the superannuation system,” he adds.

Read more from Morningstar editorial director Graham Hand on how the super tax changes will be calculated.

The government estimates the changes will generate around $2 billion a year, and there are calls for those savings to be dedicated to closing the gender super gap.

Under current legislation, Superannuation Guarantee contributions must be paid on most forms of leave, including annual leave, long service leave and sick leave. Yet, these compulsory super contributions are not required on paid parental leave, whether paid by the government or an employer.

Bradley says the impact of this is laid bare in the Super Survey, which shows a significant gap in the account balances between women and men, particularly in the 45–60 years age brackets.

“Which is really when the full effect of child-rearing responsibilities and the compounded lifetime impact of lower paid work shows up,” Bradley says.

“A difference of more than $44,000 on average between 55 and 59 years old is material. Lower overall balances for women, who have a longer life expectancy, is not a good news story.”

But Finance Minister Katy Gallagher on Thursday hinted measures around this issue could be announced as soon as the May budget, saying paid super during parental leave remains “on the table”.