Since the announcement in the 2006 Federal Budget of Simpler Super and tax-free pensions for the over 60s, the attraction of account-based pensions has drawn the attention of consumers and product providers. Together with the tax-effective transition to retirement provisions which allow the simultaneous drawdown and re-contribution of super, this has led many funds to integrate their super and pension offerings.

The days of contributing to a super fund and then transferring to a specialist pension provider are gone. To survive in the modern competitive marketplace, super funds can no longer simply cater for the accumulation phase. They must also provide pensions.

In the retail space, pensions have grown very quickly. The pension assets in several of the major wrap products (eg Asgard eWRAP, BT SuperWrap, Macquarie Super & Pension Manager) now outstrip the accumulation assets. It is the same story with Colonial First State’s FirstChoice Wholesale, while in ING OneAnswer and Suncorp Easy Super the gap between super and pension assets is rapidly closing. This trend is likely to continue, with pensions increasingly becoming the ‘main game’ in the retail market.

In the not-for-profit sector, industry funds and public sector funds have also raised the profile of their pension products. Prior to the announcement of Simpler Super, many industry funds simply referred their retiring members to Industry Fund Services’ IRIS pension. Today, almost all have their own pension products, as do most public sector funds. First State Super launched its pension in October 2006, MTAA in November 2006, CareSuper in July 2007, Tasplan in October 2007 and AustralianSuper in January 2008. In the second half of 2007, CBUS and HESTA launched badged versions of the IRIS pension.

However, while the number of not-for-profit pension products has grown, the assets in these products remain quite small. The total pension assets of the 20 major industry and public sector funds is only $11 billion out of a total of about $115 billion. Of this $11 billion, about $7 billion is accounted for by QSuper and UniSuper alone. However, some of the new pension products are growing strongly. First State Super’s pension assets have grown to $360 million in less than 2 years, and AustralianSuper $500 million in its first 6 months of operation.

In industry and public sector funds, pension members generally pay higher fees than do super members. This is in recognition of the more individualised administration of pension products (ie monthly payments to individuals rather than bulk contributions from employers) and the greater service demands of pensioners, who generally have substantial account balances and the time and inclination to take an interest in them. Many industry funds have introduced an asset-based fee for pension members (generally 0.2%-0.4%, but in some cases up to 1%) and some have increased the fixed dollar member fee, with several charging over $250 pa.

The pension landscape will continue to evolve as this part of the industry increases in importance. It is against this background that we have decided to release our quarterly performance survey of multi-manager pension products. The survey is unique, and it has taken some providers considerable time to provide their pension returns. For several funds, it is the first time they have had to provide monthly historical performance figures for their pension.

When we look at pension products, the first thing to note is that their performance is not the same as that of the corresponding super products. The reason is largely due to tax – or rather the absence of tax. While investment returns on accumulation assets are subject to 15% income tax and 10% long term capital gains tax, pension assets are not subject to any tax at all.

When markets are rising, that generally means that pension assets grow faster than accumulation assets. The highs, in other words, are a little higher. Conversely, and more unexpectedly, when markets are falling, the pension fund lows tend to be a little lower. The reason is that, unlike super funds, pension funds are unable to cushion their losses by offsetting them against taxable gains.

Table 1 below shows that, as for super fund returns, industry funds pension options have performed better than master trusts. These options (61 – 80% growth assets) may be more relevant for transition to retirement members who are still working.

Table 2 compares the conservative growth options over the same periods. These options (21 – 40% growth assets) may be more relevant to pension members who have fully retired and may be more inclined to invest in a lower risk option.

Table 2: Conservative Growth Fund Performance – Periods Ended 30 June 2008 (% pa)
Industry Segment	1 Year	3 Years	5 Years
Industry Funds	1.0	6.8	7.9
Master Trusts	-1.7	5.9	7.1
Survey Median	-0.6	6.0	7.2

Note: Conservative Growth Funds are multi-manager options with 21 – 40% growth assets.

In Tables 3 to 6, we list the top 5 and bottom 5 performers in the growth and conservative growth categories over the 3 years to 30 June. Performance in all cases is shown net of investment fees.

While not-for-profit funds monopolise the winners’ tables, they are also well represented in the losers’ tables. The message for consumers looking for a pension product is not to be blinded by fund or category labels. The decision is important and requires some detailed research, preferably with the assistance of a qualified adviser.