As far as those so called ‘guaranteed returns”, there is a cost for that both in terms of fees and performance, and if the guaranteed return is below the market performance and it comes at a big expense ratio it will not suit my needs. Maybe it would suit yours, and as long as you are making an informed decision and the options available, then far be it to question your decision.

However, currently, guaranteed returns have been pretty low, and if you had been in the market the last 3 years, you would have WAY out performed that guarantee. And maybe that was still a good decision for you, but it comes at a cost, so you just need to recognize that, in my opinion.

The problem in the past for Australia, was that you did not have that option in their Supra. Maybe that has changed now, but last time I looked no one had the low expense ratios like a Vanguard who charges as little as 20 basis points for index funds. (even less for their admiralty accounts) If you are paying more than than, in my opinion, you better be really beating the market to justify the cost.

Of course, in social security, you have a ‘guaranteed return’ in the way of a lifetime of payments after eligibility, but no choice to improve on the performance, and I take your point about leaving it to the bureaucrat is less than desirable. If I only had the choice between the bureaucrat and your guarranteed return, I too would probably chose what you have, but if I also had a choice of low cost VG index funds, then I would probably be more inclined to go that route, depending on age and closeness to retirement.

I can’t speak on how Australia does it, but the way it works here is that different wealth management firms bid every few years for control of the fund. They use it to make investments since they can make a larger return for a larger stake – just like other hedge funds.They have to guarantee a certain return on the money and pay out of pocket if they lose money, but if they make a return higher than the guaranteed return – they get a percentage of that return as their fee/profit. So they only make money if the account makes money higher than the guaranteed return – and they only get a fraction of that.The rest goes to the account.

So they aren’t “draining off any wealth” – every account grows by a guaranteed return every year. The wealth management firms only make “big fees” if they make even bigger returns on the account.

That’s a good thing. The profit incentive makes them very concerned about making the proper investments in high growth markets and since they have to make up any losses, they limit their high risk moves. Politicians and bureaucrats have a much worse investment record.

So, it boils down to this – would you prefer leaving the management of your fund to a lesser able, uncompensated bureaucrat who makes the same amount regardless of whether or not the fund makes or loses money or would you prefer leaving the money in the hands of highly skilled investment managers who guarantee your investment and who don’t make a dime unless they make you money above and beyond your guaranteed return?

For me, that’s a no brainer.