Super fund members to reap benefits of after-tax focus

Super fund members could bank additional returns on taxable accumulation accounts due to a new focus on after-tax investing a Russell Investments survey has found.

Recently introduced Stronger Super reforms includes a mandatory requirement for funds to focus on after-tax returns as part of their investment strategy.

Pre-tax performance can under-estimate the value members gained off franking credits from Australian equities, Russell said - conservative fund members could add 45 basis points, balanced option members 65 basis points and growth option members 80 basis points when franking was taken into consideration, according to the study.

Large cap managers generated additional alpha from franking of 27-53 basis points on average annually while franking added 1.1 per cent to superannuation accumulation and 2.2 per cent for pension returns on average.

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Russell Investment director of after-tax strategies, Raewyn Williams said the results confirmed the benefit of introducing mandatory consideration of after-tax investment returns for super funds under new legislation.

Additionally, it would support like-for-like comparisons between funds, Russell said.

However Williams said after-tax investing was not standard practice among fund managers.

"Focusing on the end goals that matter to members - after tax returns - portfolios can be holistically designed, constructed and managed to take into account the impact of tax," she said.

The survey also found that tax could mask real performance as some active managers appeared to be underperforming the market on a pre-tax basis but actually returned or beat the market on an after-tax basis.