Do superannuation funds manage disbursements and risk efficiently in generating returns? New evidence

Abstract

ABSTRACT Superannuation funds (SFs) offer pension programmes in Australia. Generally, employers must pay money in to an SF account in the name of their employees and employees have the freedom to select an SF of their choice. In this paper, we determine how efficiently SFs manage disbursements (costs, fees and expenses) and risk in generating returns to investors from 2017 to 2019. We introduce two measures (disbursement utilization and risk utilization) under the data envelopment analysis (DEA) methodological framework to compare disbursements and risk management performance in relation to overall management performance. The average disbursements utilization is 0.26 and risk utilization is 0.94. On average, more than 80% reduction in disbursements is required to gain disbursement efficiency whereas the average risk reduction required to gain risk-efficiency is less than 20%. No individual SF is disbursement efficient in all five sampled years. Generally, SFs manage disbursements poorly compared to risk in return generation. Variation in fees charged by managed funds is an industry-wide concern. Therefore, how funds manage disbursements is an important consideration for investors. The evidence highlights SF managers the need to pay attention to disbursements management in their pursuit of excellence in overall fund management performance.