Super an ‘inefficient monster’ says economist as funds lift fees

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Australians spend twice as much every year in management fees for their superannuation than they do on electricity. However, because these fees are hidden from view, few people realise it, says economist Leith Van Onselen, who describes the industry as an “inefficient monster”.

And those fees are rising.

AustralianSuper, the country’s biggest fund with $172.4 billion in its care, has raised administration fees by up to 0.04 per cent, meaning the annual fee for a $50,000 balance will go to $437.

That increase follows a 50 cent per week rise for members of building industry fund Cbus that will see fixed annual costs rise from $78 to $104 for a $50,000 balance.

Fee increases are expected across the board following the introduction of the Protecting Your Super (PYS) reforms last October.

The fees that can be charged on balances below $6000 are now limited to three per cent, as opposed to the flat fees previously charged that were far higher on a percentage basis.

Also, inactive super accounts valued below $6000 must now be sent to the Australian Taxation Office (ATO) for safe-keeping, largely eliminating multiple accounts and fees on each.

An AustralianSuper spokesperson said a levy had been introduced so the fund could continue to cover administration costs and provide products and services for all members.

“AustralianSuper’s fees remain in the bottom quartile for all MySuper funds based on a $50,000 balance and in the lowest decile for higher account balances,” the spokesperson said, adding that fees had actually dropped over the past decade.

“In 2010, combined fees on a $50,000 balance were $528 and in 2020 they will be $437,” the spokesperson said.

A Cbus spokesperson said that prior to the 50 cent weekly increase, it had not lifted fees for 12 years.

Another big fund, HESTA, said in a statement it had not increased fees “for many years”.

Westpac’s BT has introduced cuts to fees on its super products.

Superannuation Minister Senator Jane Hume was critical of AustralianSuper’s fee rises.

“It’s a clear sign of a system built on complacency and inertia, where the country’s largest super fund’s solution to a fee cap on low-balance accounts is to slug all other members with a new percentage-based fee, which comes on top of the 50 per cent increase in their administration fee less than a year ago,” she told Nine Newspapers.

Despite these fee increases, research group Chant West says larger funds may be able to cut fees over time.

However, Mr Van Onselen, chief economist at the MB Fund and MB Super who previously worked at the Australian Treasury and Goldman Sachs, says the evidence is undeniable that Australia’s compulsory superannuation system is a “highly inefficient monster”.

“If superannuation were a well functioning and competitive market, average fees would have fallen as the value of funds under management (FUM) has ballooned,” he says. After all, it should not cost 10 times more to manage $1 billion FUM than it does to manage $100 million FUM – that is basic economies of scale.”

Are you confident your superannuation fund is not fee gouging?

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Written by Janelle Ward



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