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Superannuation Fund Fees Under Spotlight, Research Reveals New Trends

SelectingSuper Media Release - Wednesday 3 October 2018

Australians are paying up to $32 billion a year in super fund fees, up 10% from the previous year and outpacing the rate of inflation by almost four-fold.

The average superannuation fund member is paying 1.23% of their account balance in fees, up from 1.17% in 2017, according to the latest Rainmaker Information data.

Almost two-thirds of the fees charged by superannuation funds go to investment management with the remaining one third going to fund administration.

Alex Dunnin, Rainmaker's Executive Director - Research & Compliance, said that the changes in fee disclosure make it more important for members to understand what fees are for and what the fund offers.

"These changes have dramatically changed the comparative sticker price fees across the market with retail funds offering many of the lowest price MySuper products available," said Dunnin.

Dunnin explained that whilst the headline fee might be lower for some products it is useful to look at administration and investment components off the fees separately. .

"Products offered by not for profit funds still have administration and member fees that are on average 50% cheaper than retail funds, but the fees for investment offsets this advantage." said Dunnin.

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"However investment fees vary according to what investment option the member takes up. Many funds offer low cost index options as well as higher cost more active diversified options. Ultimately fees, particularly investment fees should be seen in light of net investment returns and risk," he said.

SMSFs are again the lowest cost market segment with an average total expense ratio of 0.82%.

However this average is based on a two member fund balance of over $500,000. The normal super fund TERs are worked out using a $50,000 average balance.

The SMSF fee benchmark means the average fee for an SMSF is around $2,500 before investment fees. Investment fees can vary dramatically depending how the SMSF handles its investments, e.g., some use low cost direct share investment, some hold a small number of specific investments such as shares and a property, and some use several diversified active managed funds on a retail platform.

Dunnin said: "Despite what some super fund members may think, superannuation is now a highly competitive marketplace. If members do even a little shopping around they might be surprised how much money they can save doing something as simple as swapping their super funds."

The 2018 Rainmaker Fee Study analysed more than 2,500 fee options offered through 550 superannuation products representing 20 million member accounts. Findings from this study are used by Rainmaker in its SelectingSuper fund quality rating assessments.

 
Impact of the RG97 legislation
Total superannuation fees are estimated to be $32 billion, excluding insurance premiums and additional advice fees. This is up 10% from the $29.1 billion in the previous year, and has grown faster than underlying superannuation assets.

The annual increase in headline fees is largely attributable to the change in fee disclosures under the ASIC initiated RG97 framework that was introduced in 2017. This cost disclosure reform has however been in large part discredited in a report subsequently issued by ASIC in July that acknowledged it unfairly penalised not for profit (NFP) funds.

Still, an estimated $2.2 billion in the total fees paid increase is attributable to these changes, of which $2.0 billion or 90% impacted NFP funds. The uptick in fees due to these cost disclosure reforms, in effect, undid the fee savings caused by the introduction of MySuper in 2013.

These fee increases were however partially offset by continued decline in average administration fees across the industry.

The average fee across all superannuation products is 1.23% compared to 1.16% in 2017. The average MySuper Total Expense Ratio (TER) is now 1.20%, meaning for every $100,000 in superannuation they are paying $1200 in fees - which is equivalent to two thirds the average household electricity bill in Australia.

Despite the low overall fees paid by SMSF members they do however pay a disproportionate share of total administration costs. Illustrating this, while they represent only 5% of all superannuation members, they account for nearly 20% of all administration fees.

Single member SMSFs, SMSFs with lower balances or SMSFs adopting higher cost investment and administration services have fees above benchmark APRA regulated products.


     MySuper Products  - Best 10 by lowest Fees
 
  Product

Public Offer

Segment

Admin Fees

Invest
Fees

TER

1 Bendigo SmartSuper

Yes

Retail

0.20%

0.45%

0.65%

2 ANZ SmartChoice Emp

Yes

Retail

0.13%

0.53%

0.66%

3 GSJBWere Super

No

Corporate

0.14%

0.54%

0.68%

4 Virgin Super Employer

Yes

Retail

0.51%

0.21%

0.72%

5 ANZ Staff Super - Employee

No

Corporate

0.10%

0.62%

0.72%

6 Meat Industry Emp Super

No

Industry

0.18%

0.56%

0.74%

7 UniSuper

Yes

Industry

0.19%

0.56%

0.75%

8 CBA Group Super

No

Corporate

0.33%

0.48%

0.81%

9 EISS Super

Yes

Industry

0.00%

0.82%

0.82%

10 AustralianSuper

Yes

Industry

0.16%

0.75%

0.91%

  Average (median)        

1.20%


     
     Personal Choice Products  - Best 10 by lowest fees

 
  Product

Public Offer

Segment

Admin Fees

Invest
Fees

TER

1 Macquarie Super Mgr

Yes

Retail

0.10%

0.29%

0.39%

2 Bendigo SmartStart

Yes

Retail

0.20%

0.46%

0.65%

3 ANZ SmartChoice Personal

Yes

Retail

0.13%

0.53%

0.66%

4 Virgin Super Personal

Yes

Retail

0.51%

0.21%

0.72%

5 OneAnswer FPS

Yes

Retail

0.68%

0.06%

0.74%

6 UniSuper Personal

Yes

Industry

0.19%

0.56%

0.75%

7 ANZ Staff Super - Personal

No

Corporate

0.20%

0.62%

0.82%

8 PursuitFocus PS

Yes

Retail

0.34%

0.50%

0.84%

9 Macquarie SC

Yes

Retail

0.59%

0.29%

0.88%

10 Suncorp BS Personal

Yes

Retail

0.65%

0.24%

0.89%

  Average (median)        

1.42%



    Retirement Products  - Best 10 by lowest fees
 
  Product

Public Offer

Segment

Admin Fees

Invest
Fees

TER

1 Macquarie Pension Mgr

Yes

Retail

0.10%

0.29%

0.39%

2 ANZ SmartChoice Pension

Yes

Retail

0.08%

0.53%

0.61%

3 MIESF Pension

No

Industry

0.09%

0.56%

0.65%

4 UniSuper Pension

Yes

Industry

0.26%

0.43%

0.69%

5 Equip Pensions

Yes

Industry

0.28%

0.41%

0.69%

6 Equip MyPension

Yes

Industry

0.28%

0.41%

0.69%

7 Smartsave ABP

Yes

Retail

0.07%

0.62%

0.69%

8 Bendigo SmartStart

Yes

Retail

0.30%

0.41%

0.71%

9 CBA Group Super

No

Corporate

0.24%

0.48%

0.72%

10 Cbus Income Stream

Yes

Industry

0.18%

0.58%

0.76%

  Average (median)        

1.26%

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