Australians have more than $3 trillion in superannuation funds (super), and pay a whopping $30 billion a year in fees and charges. Most people find super confusing and up until now, the super funds have had it their own way. They get regular money due to compulsory contributions and their members just let them do what they want with it.

This all stopped last week when the Government released a report on their returns. They have taken the returns over the last five years and then any fund with returns that were more than 0.5% less than the median was considered to have underperformed. This is both good and bad.

The good

It is about time a spotlight was put on the super funds. Often super funds are run for the benefit of the fund managers and not the members. If nothing else, at least the media attention might make more people look at their super.

The bad

The review only covers the MySuper products, which is less than 30% of all money held in super. It ignores the fact most super funds have between four and 40 other investment options. While it is good to highlight poor performers, without greater explanation it can cause more confusion.

How your super is performing?

I get why they have taken this approach. It is easy. But it misses two critical things.

The ugly

By only looking at returns, it ignores what the different funds were invested in. There are broadly four types of assets. Business (shares), property, bonds, and cash. Shares and property generally get higher returns compared to cash and bonds. However, shares and property are also riskier.

By focussing just on the returns, it ignores the fact some people want and need more security and less risk. To say people can choose other investments is a bit of a cop-out as history tells us that most people are confused by super.

One of the consequences of this report is the Super funds are now being forced to push the envelope in terms of how much risk they take. Instead of holding secure assets like cash/bonds, they will start lending money to hedge funds or use expected rent from their property investments as a proxy for cash. If there is a significant recession this could all end badly.

The other issue is there is a great body of work that shows there is no correlation between funds that have performed well over the last five years and funds that will perform better over the next five years. The Government seems oblivious to this.

What you need to do

Personally, I don’t like any investments that I don’t know what they are. Therefore, what I recommend is to move to a tailored investment mix that is made up of a selection of Australian shares, international shares, property, cash, and bonds that suits you and your age/financial situation.

As a rule, people under 55 should have a relatively high proportion of shares and property, while those older than this tend to move (slowly) to having more cash and bonds. This way you can take advantage of the growth opportunities while you are young and then reduce the risk as you age.

Start by looking at your own super fund to see if they offer these investment options. If they don’t, find one that does.

I live and breathe super. If you want to discuss yours, book a chat via the button below, or contact us on 0417 034 252 or

About the Author
Phil Harvey is an independent financial adviser. In 2017 Phil set up his company Construct Wealth to help clients best manage their finances so they focus on what is important to them. He is a founding member of the Profession of Independent Financial Advisers and a tax financial adviser, registered with the Tax Practitioners Board.

General Advice Warning
This advice contains general information. It may not be suitable to you because it does not consider your personal circumstances. Phil Harvey and Construct Wealth are authorised representatives of Independent Financial Advisers Australia (AFSL 464629)

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