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Super fund fees fall 10% in 2013-14

2 October 2014 - Immediate release

SelectingSuper, in partnership with the Rainmaker group, has just released the results of its 2014 Super Fund Fee Survey, its most comprehensive fee study yet that this year covered 535 superannuation products - including 107 MySuper products - and 61 self managed super fund administration groups.

Highlights:

  • Overall super fund fees have fallen sharply by 10% to a system-wide fee ratio of 1.12%, down from 1.24% in 2013.
     
  • This fee ratio equates to total gross superannuation fees paid in Australia amounting to an estimated $20.2 billion.
     
  • Segment average Total Expense Ratios (TER) were found to be 1.25% for overall Workplace (employer) funds, 1.81% for Personal funds, 1.70% for Retirement funds, 0.80% for SMSFs and 2.32% for ERFs.
     
  • Investment fees (which are a component of the TER) have continued to fall, dropping 10% over the past four years from 0.70% to 0.62%.
     
  • Ongoing fees for retail products have fallen even more sharply, eg, in Workplace retail products they are down from 1.3% to 0.89% in the past five years.
     
  • There is no relationship between fees and returns but funds charging higher fees tend to be those offering more investment choices and advice support, meaning higher fees don't buy better returns but they do generally speaking buy extra features and more services.
     

MySuper fees

  • The average TER for MySuper products was found to be 1.1%.
     
  • The cheapest MySuper product overall was found to have a TER of just 0.48% noting the cheapest public offer MySuper product had a TER of 0.60%.
     
  • Not-for-profit (NFP) MySuper products were found to have an average TER of 1.01% while retail MySuper products were found to have an average TER of 1.25%.
     
  • Reflecting how effective the MySuper reform has been in lowering fees, fund members should note that this retail MySuper fee average TER is significantly below what retail funds used to charge on the open market.
     

International comparisons

  • While fees charged by super funds in Australia are still perceived as high by international standards, these international comparisons in Rainmaker's view are dubious because they commingle fees charged by low cost national and defined benefit funds with Australia's composite system that covers these types of funds as well as the broader retail sector that bundles advice and full-featured platform services.
     
  • Illustrating this, in Sweden (a country that is believed to have inspired the MySuper policy with its 0.3% TER for its national pension plans), a significant proportion of its pension fund assets are held in 'premium pension plan' mutual funds that have average fees of 0.9% but which are reduced in their pension system by a rebate because the national pension system operates what is in effect a national clearing house, ie, these pension mutual funds have no distribution costs.
     

SMSFs

  • SMSFs were again found to be cheapest fund segment, provided of course members have sufficient capital to justify the set up costs. And technology is making them even cheaper.
     

Rainmaker executive director of research, Alex Dunnin, said: "retail superannuation groups are achieving these lower TERs especially in their MySuper and FOFA-ready products because they are using their technology advantage, unbundling previously embedded advice fees and tilting the way their investments are managed much more heavily towards indexed investment strategies (eg, using Exchange Traded Funds)."

"Embedded advice commissions used to account for up to 40% of retail fund fees so it's easy to see how removing these fees and encouraging investors to pay their financial advisers directly has enabled funds to slash their fees so aggressively and so quickly," he added.

But Dunnin said we should remember that NFP fund fees haven't fallen as much as retail fund fees because they were already low, in other words it was retail funds that needed to catch up.

Dunnin said, "The only catch to these taking advantage of these low fee super products is that members have to actively join these lower fee products because fund promoters are not necessarily unilaterally lowering fees, instead they are launching low cost products and members have opt into them."

A corollary of this, especially in the low cost MySuper segment, is that as members' superannuation savings are progressively switched into MySuper products, these lower cost products will become the central core of the superannuation system and fundamentally transform superannuation's narrative from being built around expensive and complex entry level products to being built about low cost simple entry point products.

Dunnin said: "As this affect gathers pace Australian super fund fee ratios should fall even further particularly as it unleashes competition into market segments where previously there wasn't much competition at all, at least not on the demand side."

The lowest cost MySuper products are described in the following table:

MySuper TER   Personal TER
ANZ Staff Super 0.48%   ING DIRECT Living Super 0.00%
ANZ Smart Choice 0.60%   ANZ Smart Choice 0.60%
EISS Super 0.63%   Bendigo SmartStart Super 0.64%
Bendigo SmartStart Super 0.64%   First State Super - Personal 0.66%
Meta Industry Employees Super 0.65%   Club Plus Super Personal Division 0.68%
First State Super - Police Blue Ribbon 0.65%   AMIST Super Personal Division 0.73%
First State Super - Employer sponsored 0.65%   StatewideSuper Personal 0.77%
First State Super - Ambulance 0.65%   Rio Tinto Super Fund - Personal 0.84%
QSuper 0.68%   LUCRF Super Personal Plan 0.84%
Commonwealth Bank Group Super 0.68%   AMP Flexible Super 0.84%

For further information about the 2014 Rainmaker Super Fund Fee Survey, please contact Rainmaker.

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