Choice a bigger risk than defaults says ISA

The strongest determinant of performance for superannuation fund members is not simply scale, but the commercial model and profit orientation, according to Industry Super Australia (ISA).

ISA has used a submission to the Productivity Commission (PC) to once again stress its belief that industry funds outperform their retail counterparts.

Pointing to previous questions posed by the PC, the ISA noted that it had asked whether the greatest risk a member faced in superannuation was being defaulted into a poor-performing product.

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It claimed this was not true, and that the statistical evidence showed “that the greatest risk to a member is being sold into a choice product”.

“The degree of risk is a function of the probability of a harm (in this case, low net returns), and the magnitude of that harm (in this case, the degree to which the returns are low),” the ISA submission said.

While acknowledging that some default funds fell into the bottom quartile in terms of net returns, the ISA submission argued that more than two-thirds had achieved returns in the top quartile.

“This means that, probabilistically, there is greater than a two-in-three chance that an account that was established through the default system will have received top quartile long-term net returns,” the submission said.

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