Superannuation funds poor returns for cash

[Bill M]

I am a member of an industry Super Fund and I was just going through it's last statements and magazine that they sent me. Generally their return for most of their different types of investments are quite reasonable and in line with the general market. However I did notice their cash options have very poor returns.

These are the returns for the last 12 Months to 31 December 2007.

Australian fixed interest---1.56%

Diversified Fixed Interest---3.92%

International Fixed Interest---4.84%

Cash---4.96%

Currently I can get 7.3% for my at call account and 8.2% for a 1 year term deposit outside of super. After tax that gives me 5.5%. If you are will to buy floating rate notes or corporate bonds you can do much better than 5.5%.

My question is how is it that anyone off the street can make 5.5% net after tax by themselves but super funds with less taxes do so poorly? They do have management fees but they are very low and not of big consequence as the funds are non profit organizations. Am I missing something or am I better off by staying out of super? I am talking of the cash options only.

[theasxgorilla]

I'd love to know the answer to this too. Have noticed the same thing.

ASX.G

[Uncle Festivus]

Hi Bill, Where are you getting 7.3% at call?

[Prospector]

Their returns for cash in Australia should be much higher than that, but if heavily geared into the US, then obviously much lower.

6.8% is the current rate for at call online access to money with NAB. They should be able to beat that easily, given the $$$ the Super fund has to invest.

[TheRage]

Bear in mind that the cash rate on most super funds is a unitised entity just like all other pooled investments so it is not set at a bench mark like a fixed term deposit. It has a buy and sell price depending on the activity of those within the fund and the supply and demand for it.

Super funds also take their internal management fee and earnings tax also comes out of this return. Remember earning 7% outside of superannuation in a fixed term deposit on a marginal rate of 46.5% would effectively be a return of 3.35% after tax. Therefore the net return of 4.96 doesn't seem too bad if you were a high income earner. The only way to try and get around all of this is a SMSF with high Fixed interest un-unitised component with lots of Aussie shares mixed in with Franking credits to wipe out any earnings tax. This is not advice and should not be taken as such.

[Bill M]

Quote: Originally Posted by Uncle Festivus Hi Bill, Where are you getting 7.3% at call?

[Tysonboss1]

Quote: Originally Posted by Bill M I am a member of an industry Super Fund and I was just going through it's last statements and magazine that they sent me. Generally their return for most of their different types of investments are quite reasonable and in line with the general market. However I did notice their cash options have very poor returns. These are the returns for the last 12 Months to 31 December 2007. Australian fixed interest---1.56% Diversified Fixed Interest---3.92% International Fixed Interest---4.84% Cash---4.96% Currently I can get 7.3% for my at call account and 8.2% for a 1 year term deposit outside of super. After tax that gives me 5.5%. If you are will to buy floating rate notes or corporate bonds you can do much better than 5.5%. My question is how is it that anyone off the street can make 5.5% net after tax by themselves but super funds with less taxes do so poorly? They do have management fees but they are very low and not of big consequence as the funds are non profit organizations. Am I missing something or am I better off by staying out of super? I am talking of the cash options only.

[Bill M]

Tysonboss1, yes the bond issue accounts for the fixed interest accounts but a cash account should really return more than 5% particularly as they are only taxed at 15%.

I do not have a SMSF but it seems like I might have to start one up, that's another thread on it's own.