Two recent reports have focussed attention on the adequacy of the superannuation system in Australia to prepare Australians financially for their life in retirement. The federal government's intergenerational report and Rice Warner Actuaries' Retirement Savings Gap report (840k PDF) both show the pending stresses on the nation if the current system is allowed to continue.
A lot of the focus has been on whether the 9% standard employer contribution level is enough. This looks at the money going into the system. Unfortunately not enough seems to be made of the flows out of the system, most importantly the fees being charged.
The average fee for managing superannuation is currently 1.2%. Unfortunately many are being charged much more than this to maintain a superannuation account. The mantra being applied by these higher cost funds is that the investor need not worry about the level of fees but rather the net return after fees which of course is correct. Unfortunately what they forget to mention is that once we accumulate all investor returns the average return is the market return. So if everyone gets the average gross market return the distinction between one investor and the next is the evel of fees paid to get that average return.
For this firm the preferred approach for superannuation account holders is to focus on the key determinant of investment returns - asset allocation - and then make sure you are getting your optimum asset allocation (given your risk preference) at the lowest cost.
If you can apply this approach over the life of a superannuation holding you can be confident that you will have a much better than average result in retirement.