This week I’m deviating from my usual small business themed post to bring you exciting news about a new fintech venture I’ve joined.
After 6+ amazing years working at Australia’s flagship fintech Tyro, across business development, marketing and product, I’ve decided to jump into startup land, taking on the role of co-founder and CEO at a superannuation startup called Zuper.
What is superannuation?
For those of you further afield than Australia, superannuation is the equivalent of the UK’s pension scheme, or 401K in the US. Since it’s inception in 1992, the industry has amassed a phenomenal $2 trillion under management. I say ‘under management’, because despite growing evidence passive investment strategies, not active, are possibly the cheapest and most effective mechanism for long term investing for the masses, not many Australian super funds (or their armies of well paid fund managers) seem to agree.
As early as 2015, Sunsuper was one of the few super funds to buck the active trend, partnering with Vanguard to reduce its reliance on stock pickers. A more recent blow to active managers across the broader funds management industry was an announcement in May this year by the Future Fund, Australia’s biggest investor, that it too would rejig its portfolio towards passive vehicles.
The opportunity and problems to solve
We think superannuation as we know it in Australia needs to be retired. Alongside a massive digital overhaul, we want to use Zuper to empower Australians to align their values with how their money is invested, for a future they care about. We’ll also be using passive investment vehicles to do this.
To give you some idea of the opportunity in the space, here are a few startling superannuation stats.
High costs for little real value
- According to the Productivity Commission, in 2014-15, Australians paid about $12 billion in fees to APRA-regulated funds. Just over $2 billion of this is attributed to investment fees alone.
- For FY14, a Rice Warner report estimated fees averaged out for members across the industry at 1.10% (110 bps). And while fees should never be looked at in isolation from performance and value, the lack of product differentiation across the sector makes for slim pickings on the value front.
- According to the Association of Superannuation Funds of Australia (ASFA) March 2017 Superannuation Statistics report, the average 5 year investment return for the industry is 5.2 percent. Compare that with the Vanguard Australian Shares Index ETF, which tracks the S&P/ASX 300 Index, and managed to return just over double that, 10.61 percent, over a similar period for 14 bps. As a result, the industry is facing churn from members with $250K balances and above into Self Managed Super Funds (SMSFs) that invest in products like this.
Systemic implementation problems make it hard for average Australians to build wealth
- According to the Productivity Commission report, 40 percent of Australians hold more than one super fund, paying multiple sets of investment fees and insurance premiums (life insurance, income protection and total permanent disability insurance is often wrapped into superannuation products). This dramatically reduces the effect of compounding. There has been a lack of will and coordination by the industry as a whole to tackle this consolidation problem.
- Despite it being 2017, Australian women retire with half the balance of men. In 2013/2014 men, on average, retired with $292,500 while women ended up with $138,150. This can be attributed in part to a gender pay gap of 16%, time out of the workforce to raise children, and no superannuation payments on the unpaid portion of maternity leave. The disparity exists today for younger Australians, suggesting the trend will continue without intervention. Oh, and need I remind you women live longer than men? Double whammy.
- Of the 176 retail and super funds, roughly 10 have a mobile app, resulting in disengagement and apathy.
- Each year an estimated $3.6 billion in superannuation payments aren’t even made by employers (mainly small businesses), leaving 30 percent of the Australian workforce out of pocket to the tune of $1,489 each year.
Housing used to be most Australians retirement stop gap. But even in a low interest rate environment owning a home in Australia’s major cities is now almost completely out of reach for the millennial generation . The median house price in most centres is over $1M.
And, due to over-leverage during an individual’s working life, many retirees will be forced to use their super to actually finish paying off their mortgage. Those who own no property at retirement will also still need to pay rent. Deloitte estimates that the projected retirement balances of millennials of $1.1M will fall short by around $500-$600K – with rental added this could be even higher.
Superannuation is an awesome idea. We are incredibly fortunate to have it in Australia. But how it is executed has room for improvement, and only the whole industry can benefit as a result of increased digitally minded competition.
I’ve written more about why I joined Zuper in the post below. I’d love you to read it, share with me your thoughts and if you believe in what my co-founders and I are doing, help us spread the good Zuper word!