Median superannuation returns fell into the red over the March quarter, reflecting the rout on the Australian share market over the period.

Data from research firm Chant West shows those with a median growth allocation saw their funds slip 1.1 per cent over the first three months of this year, while since the start of the financial year returns are barely positive.

Yet the data also shows that industry funds significantly outperformed retail funds over the March quarter, returning -0.6 per cent versus -1.6 per cent.

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Industry funds also hold the advantage over the longer term, having returned 6.7 per cent per annum against 5.7 per cent for retail funds over the 15 years to March 2016.

Meanwhile, separate research from SuperRatings measuring the performance of Australia’s superannuation funds shows industry super funds have continued to outperform bank-owned and retail funds over the long term despite market volatility.

The data shows that, on average, industry super funds have outperformed bank-owned super funds by 2.15 per cent over 10 years.

Bank investment models driving lower returns

“Consistent outperformance by industry super funds over bank-owned super funds reflects the differences between for-profit and not-for-profit business models and investment philosophy,” said David Whiteley, chief executive of Industry Super Australia.

“There is no doubt that these are key drivers in performance outcomes. Industry super funds deliver all profits to members, aiming to maximise returns for members with a broad investment portfolio which remains resilient when the market dips.

“Investing across a range of asset classes, particularly long-term, physical assets such as infrastructure, helps protect against market volatility.”

Mr Whiteley said the latest data compelled policy makers to find out why bank-owned super funds have consistently delivered lower returns to their members than industry funds.

“The chronic underperformance by bank-owned super funds highlights concerns over the banks vertically-integrated business models, which continue to drive lower returns for their members.”

Chant West managing director, Warren Chant, said one of the key reasons industry funds had outperformed was their higher exposure to unlisted assets, including property, infrastructure and private equity.

“Australian and international share markets, which are down 9.3 per cent and 4.4 per cent, respectively, over the past year, are marked to market,” he said.

Long-term returns have been steady. Photo: Getty

“However, unlisted assets are valued infrequently, with their valuations typically lagging behind listed markets by six to nine months.”

Mr Chant said industry funds were more diversified and better positioned to outperform retail funds, which were more exposed to equity markets.

The support threat from low interest rates

But Reserve Bank governor Glenn Stevens warned in New York last week that ultra-low interest rates were increasing pressure on returns for super funds.

He warned that, in a world of sluggish growth, “implicit promises” about retirement incomes were in danger of not being fulfilled.

Mr Stevens said record low interest rates were “a big problem” for savers and that many stand to be “disappointed” about the direction of their retirement nest eggs.

“The problem almost certainly is not confined to defined benefit plans. Even accumulation arrangements are predicated on some set of assumptions about future income needs and returns.

“It may take longer, but surely eventually many of the owners of these funds are going to feel disappointed.”

However Mr Chant said one should not overlook that most retirees were in more conservative allocation positions with some share market exposure, and these had performed relatively well over time.

DISCLAIMER: The New Daily is owned by a group of industry superannuation funds.