KPMG: The Future of Super Lies in Responsible Investing

A new report from KPMG suggested super funds investing more responsibly may be key to long-term performance and sustainability.

Ethical investments in super

KPMG’s Super Insights Report 2018 provided commentary on several issues the superannuation sector is currently facing, including securing the assurance of growth and sustainability.

Climate risks both “foreseeable” and “actionable now”

The report placed particular emphasis on the threat posed by climate risk, along with the immediacy and relevancy of the threat; APRA Executive Board Member Geoff Summerhayes said climate risks were foreseeable, material, actionable now, and distinctly financial in nature.

Additionally, the report noted the link between climate-awareness and long-term sustainability, saying a company’s path to financial performance was dependent on understanding its societal impact.

KPMG stated in the report while there had long been a perception “that responsible investing options underperform the wider market, the opposite appears more likely”.

The report found incorporating environmental and social considerations into investment decisions appeared to be driving long-term sustainable value, and helped outperform equivalent funds that did not consider said factors.

However, Canstar General Manager for Wealth Josh Callaghan said ethical investing is easier said than done at a personal level.

“Many consumers say they have a desire to invest their retirement savings ethically, however there remains a disparity between what consumers say that want, and what they actually enact,” he said.

“This is in part due to their level of conviction towards ethical investing and in part the perceived difficulty of enacting that conviction.

“Many funds already have ethical options with even more looking to bring them on, however, in my view the tools that support members making this decision are generally lacking.

“This potentially leaves members out in the cold when it comes to being able to enact their convictions.”

The following table contains details of the superannuation funds rated by Canstar based on someone aged 40-49. This table has been sorted by one-year performance (highest to lowest).

Please note that the performance information shown in the table is for the investment option used by Canstar in rating of the superannuation product.

To view the past performance of all super funds, rated by Canstar, use our comparison tool:

Compare Superannuation Funds

50% less super funds by 2028

The report showed the ability of a super fund to ensure long-term sustainability was now more crucial than ever, predicting the next decade will see a halving of the number of APRA-regulated super funds operating in Australia.

KPMG also predicted the emergence of a ‘two-speed’ super industry in the coming years, with an enormous financial gap between big and small funds.

KPMG Head of Asset and Wealth Management Paul Howes said the corporate fund sector was likely to face the greatest consolidation pressures, while the industry and public sector funds were expected to see a 50% reduction in fund numbers, and slightly less in retail.

“By contrast we see the SMSF sector continuing to expand,” he said.

The report predicted an increase in the number of self-managed super funds to the tune of nearly 50% by 2028, from 598,596 to 886,900.

KPMG findings

Source: KPMG Super Insights Report 2018 

We’re contributing more, but our employers aren’t

Another key finding from the report was the average fund grew its contributions by 15.6%, despite the fact employer contributions didn’t move from 4.8% – the increase was driven in large by a substantial 47.8% increase to personal after-tax contributions, which KPMG described as “a strong turnaround from 2015/16”.

Callaghan noted this was a positive result.

“Extra contributions to super, particularly by young people, can make a significant difference in the retirement lifestyle of members,” he said.

“Australians seem to be increasingly engaging with their super and this will inevitably start to put different pressures on funds to better reflect the needs and desires of their members, which includes where and how their money is invested.”

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