Aussie superannuation management the world’s costliest

Super fund managers spend more of your savings on operation costs.

Aussie superannuation management the world’s costliest

While Australia’s superannuation sector is the envy of the world, the latest global data shows our funds spend more of your assets on operating costs than any other nation.

Aussies are in the top four countries whose super funds are worth more than the national wealth, as measured by gross domestic product (GDP), but the sector’s expenses as a proportion of fund assets are among the steepest.

In the Organisation for Economic Co-operation and Development (OECD) list, the Netherlands’ super system packs the most punch, followed by Iceland, Switzerland and Australia. Our funds are worth more than 120 per cent of the GDP, making our retirement nest eggs among the largest in the developed world.

Association of Superannuation Funds of Australia estimates the total value of super is $2.2 trillion (to the end of 2016), which is closer to 130 per cent of the nation’s wealth. Following strong share markets in 2017, that figure has now been exceeded.

However, the OECD Pension Markets in Focus 2017 report shows that Australia’s super costs are higher, at 0.8 per cent of total assets, than the three nations topping the list. In those countries, operating expenses range from 0.1 per cent to 0.6 per cent of total fund assets. In fact, Australia’s fund management costs were the most expensive of all large OECD nations, except Spain (1.1 per cent).

Of the four top nations, only Iceland’s funds paid out more benefits proportionately (7.1 per cent) compared with Australia on 6.1 per cent.

Both Australians and the Swiss paid more into their funds (8.3 per cent of GDP) than other nationals, well ahead of the next biggest contributors, the Icelanders (6.5 per cent).

Greece and Spain – whose economies fared disastrously after the Global Financial Crisis – reported the lowest contributions to pensions on 0 per cent and 0.4 per cent, respectively.

In terms of super returns, Australia was eighth on the list with a five-year average of 5.8 per cent. Canada led the ladder with 6.9 per cent.

Of the larger economies, Australian funds were significantly more skewed towards share market investments (51 per cent of assets). The three top performing nations on the basis of returns (Canada, the Netherlands and Hungary) had between eight per cent and 23 per cent of assets in equity.

While the over-reliance on shares has led some commentators to suggest the nation’s super fund returns are less reliable because of stock volatility, 2017’s bull markets around the world have helped Australian nest eggs grow significantly.

The OECD analysis, on the other hand reflected market conditions to the end of 2016, before some markets increased their momentum significantly.

Are you happy with the returns on your super? Do you think our fund managers should curtail costs and lower fees? Do Aussie funds invest in shares too heavily?

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    COMMENTS

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    18th Jan 2018
    10:49am
    Happy enough with returns and my fees are very low, though I do a lot of the admin work myself to cut costs. But what angers me is the stupidity of the Federal Government offering Aussies a 2% bonus over average superannuation returns to NOT SAVE. We may have a healthy balance now, but how long will it remain healthy with people increasingly recognizing retirees are penalized for accruing healthy savings. If you can't be very wealthy, you are better off with only a few hundred K in assets, otherwise you may well end up worse off than someone whose reduced assets entitle them to a pension and benefits.

    Super returns an average of 5.8% according to the article. The assets test assumes a return of well over 7.8% when you include benefits, and there's no management cost, management work, or risk. What absurd logic drives political decisions to punish people for saving for retirement?
    Greg
    18th Jan 2018
    11:16am
    Average returns of 5.8%?? That can't be correct - doesn't Old Geezer say 10% is easy to obtain and everybody should be doing it.

    The 7.8% is driven by selfish politicians only worried about the "now" and not the good of the country long term.

    Bring back Tony & Joe, Bring back Tony & Joe.... hehehe
    *Imagine*
    18th Jan 2018
    3:31pm
    Here are some figures to illustrate your point Rainey.
    Assume a single person’s super balance at the end of 2017 is $300,000.
    In order to take 5% minimum in 2018 the pensioner withdraws $15,000 leaving a balance of $285,000. Now if Olga’s figures are rounded to 6% increase, then the new balance at the end of 2018 will be $302,100. In 2019 the pensioner will withdraw 5% of this new balance, that is $15,105, an increase in income of $105 pa.

    However, the asset threshold is $253,750 for a single pensioner so the age pension is reduced by $3 in every thousand above $253,750 = $3,607.50 in the first year - based on $300,000.
    In the following year the value of the super account has risen to $302,100 (6% rise from $285,000) so the age pension is reduced by $3 in every thousand above $253,750 = $3771.30

    The result is that the income from the super account has risen by $105 but the reduction of the pension $3607.50 - $3771.3 = -$163.80.

    So our pensioner has an increased super balance and an increased super pension but is $163 per year worse off.

    I produced a spread sheet that suggests that as the Super returns improve, then so too does the Govt take, at the expense of the pensioner. For example an 8% return will see our pensioner getting $390 extra but the Pension is reduced by $608.40. that is $218.40 worse off per year.

    Maybe low returns are better if you are a part pensioner unless you withdraw a percentage of the balance equal to the annual increase.
    Anonymous
    18th Jan 2018
    4:01pm
    great example *imagine*

    do the super rules allow you to take a lump sum out as well as the 5% ?
    I mean can you for example take out any excess over and above $253,750 if you want in any given year ?
    Mad as Hell
    18th Jan 2018
    4:03pm
    Hi Rainey. Agree with your comments again, keep them coming, hopefully logic will get in through the cracks.
    *Imagine*
    18th Jan 2018
    4:32pm
    Yes Raphael, you can take out lump sums as well. However, it reduces the purchase price of the super so more of your future super pension is treated as income by Centrelink. ( Based on the former 27H amount calculated by age at start of super pension and the purchase price of that pension, that is the super balance at the time.)
    This affects those who are assessed under income as opposed to assets. The upside is that the lump sum is not treated as income at all, so for income assessed pensioners it is advisable to take the minimum percentage super pension and top it up with a lump sum. Another complexity brought about by fiscal incompetence. Easier just to pay a set pension to all aged Aussies and dump all this nonsense. If they have to they could provide a means tested welfare supplement for those who are really doing it tough.
    Greg
    18th Jan 2018
    5:41pm
    Imagine & Raphael - Yes Raphael you can take out lump sums. Imagine sounds like you're talking about an annuity not an account based pension. Superannuation changed to an account based pension has no purchase price you just change your accumulated super fund into an account based pension type fund. The balance of this fund IS counted as an asset for the asset test, you have to withdraw a percentage each year (depends on age) and you can withdraw lump sums. Also the balance of the fund is "deemed" under the income test, so the least OAP from assets or income tests will be the OAP you receive.
    *Imagine*
    18th Jan 2018
    6:05pm
    Greg I quote from ASIC 2017 "An account-based pension (also known as an allocated pension) is a regular income stream, purchased with money you have accumulated in super, after you have reached preservation age."
    Note ASIC also use the term "purchased". The reason is that a certain amount of your super pension is return of your own money. Centrelink determine how much of your annual super pension is income to assess against the income test. The Super balance at the start of the year is what is counted as an asset AND the purchase price along with your age at the change from accumulation to pension phase, determines how much of your pension is assessed as income. I understand your confusion because the whole area is complicated for example you mention deeming of the account balance, that is a recent change and grandfathered so some accounts will not be deemed.
    Anonymous
    18th Jan 2018
    6:20pm
    Guys - I think those who have more than $273 k but less than say $1.5M, should put the difference in a fireproof safe

    Maximize pension and super income at $38k p.a and withdraw from your safe to top up spending

    Alternatively invest the difference in high risk high growth shares.

    WOrst case if you lose it all you still have min $38k p.a. from super/ pension mix
    Anonymous
    18th Jan 2018
    6:23pm
    PS - thanks for the info *imagine* and Greg. Much appreciated
    Greg
    18th Jan 2018
    6:28pm
    Imagine - ASIC also say "An account-based pension is started with a lump sum from a super fund. This is usually done by transferring money from an accumulation super account to an account-based pension account, after you have reached your preservation age."
    I always think of annuities as purchased, allocated pensions are just a simple change of fund type.

    Also "Your Age pension entitlement is determined by an income test and an assets test. Your pension balance will be counted as an asset under the asset test. The balance will also be deemed under the income test. The test that results in the lowest Age pension being paid to you is the one that Centrelink will apply.

    If you started your account-based pension before 1 January 2015, and were already receiving a Centrelink pension or allowance, then only part of your pension income will be assessed under the income test. If you commenced your pension on or after 1 January 2015 then the whole balance will be deemed for income test purposes."
    *Imagine*
    18th Jan 2018
    7:39pm
    Greg, the problem with discussing complicated financial issues on an open forum is that errors can be perpetuated and we end up with shared ignorance. I have been running a SMSF since 2003 and have seen many changes.With respect I am fully cognisant of all of the requirements and stand by my statements. What we think is irrelevant. There are strict Centrelink and ATO rules, their websites are very helpful but one does need to be financially literate to understand all the rules regarding pension 'valuation factors' and Centrelink 'relevant numbers' 'undeducted contributions' and a host of other esoteric claptrap to help understand how much of your super pension is return of your own money, how much is counted by the ATO as income and how much Centrelink count towards the income test.
    Go with Raphael and put your xs money in a fireproof box.
    ex PS
    23rd Jan 2018
    2:56pm
    Not only can you take out a lump sum from your super but the first $180K or so is tax free after you pass your preservation age.
    floss
    18th Jan 2018
    11:39am
    I hope bring back Tony and Joe was only a joke as we all know they are Greg.I find Industry fund fees just ok. and think Retail funds a rip off.Big Joe and his mates have set super to fail as a retirement income Rainey as you have pointed out.
    ex PS
    23rd Jan 2018
    2:51pm
    No bring back Abbott and Costello, we are being led to disaster by clowns, we may as well have a world renowned comedy duo do it.
    *Imagine*
    18th Jan 2018
    11:53am
    Compulsory super is fine for those who have a work history or situation where the super contributions are guaranteed. However we could end up with a situation where we have a huge disparity between the “haves” and the “have nots”.
    Does the following extract from Helen Butcher “Shame of going on the Treacle Stick” 1930s in Birmingham UK, ring any bells with the ‘Welfare Card” approach that we are seeing in AUS today?

    Going on "the Parish", or "on the Treacle Stick" as it was popularly known, was demoralising and degrading.
    The Guardians "were part of the lofty and inaccessible system by which 'they' ruled our lives, moralising, capricious and cruel."
    Claimants like Helen's mom had no rights.
    Three "comfortable, worthy, middle-class people" sat in judgment and "you knew their power, they could feed or starve you."
    If and when you were assessed as worthy of relief then you were allocated a weekly sum of money that had to be taken "in gratitude and humility, with many scrapings of feet on the doormat before and after the inquisition".
    Such money had to be spent wisely and, as Helen remarked with biting sarcasm, "not squandered on luxury items like a constant fire in the grate, clothes, shoes on your feet all year round and a good hot dinner every day".
    To make sure that you were obeying all the rules and not bringing in money from other sources, you were regularly fetched back before the Guardians to be interrogated about your circumstances by "stern, well fed faces".
    Indignity after indignity was heaped upon you, "like presenting your grocery card to the shop assistant who could only give you the items stated".
    In her old age Helen still felt the shame searing through her at the bitter memory of how as a child she had handed over her card "with the other people in the shop looking on and knowing I was 'on the parish'. I wanted to get out as fast as I could."

    Are our Guardians (politicians) taking us down this former UK path? Should we not learn from the nation that has, since the 1940’s developed a universal pension plan, and encouraged individuals to supplement their pension with private superannuation choices?
    *Imagine*
    18th Jan 2018
    1:12pm
    Just looked up the three top performers, Netherlands, Iceland and Switzerland, they each have a universal age pension scheme and this is supplemented by employment superannuation investments and tax advantaged, private retirement savings. In other words their aged citizens enjoy retirement with the age pension added to their other income. In Aus we subtract a proportion of the tax advantaged superannuation asset and/or earnings and the ordinary savings and other assets or income from the age pension. Is it any wonder that we have a whole industry of people advising how to avoid these reductions and a Government determined to stamp out the avoidance by continual policy amendment. A universal AUS aged pension would be so much simpler, fairer and less expensive. Clever county indeed.
    Rae
    19th Jan 2018
    8:27am
    Universal systems can work very well Imagine. Those countries are very strict about equality. The universal health and education system also works very well for people allowing them to save a little but often as there are no expensive insurance policies, out of pocket fees or private school costs. Everyone pays more tax of course but probably not more than taxes here and then all the extra fees we have running dual systems.
    Anonymous
    19th Jan 2018
    9:20am
    Rae, I think what many in Australia fail to understand is that the total tax we pay over a lifetime is actually the total deducted or paid MINUS the value of all taxpayer-funded benefits. So, for example, someone who has a very low income then retires on a full pension may actually pay negative tax over a lifetime. Those who whine about high taxes actually pay far less than they claim, because they don't count the benefits they receive. So there are two ways to reduce tax. One is to decrease the amount paid into government coffers. The other is to increase the benefits. Many nations that appear to have high taxes actually have low taxes because they enjoy free education, free health, a generous retirement income, help with housing, etc. etc. etc.

    Instead of focusing on tax, our government should start emphasizing the benefits our tax facilitates, and focus on increasing these benefits. I can't think of a more appealing promise, for example, than a guaranteed right to retire in comfort at an age when retirement can be really enjoyed. I suspect many would prefer to pay just a little more to enjoy that benefit rather than have a tax cut now and suffer later. Has the government ever asked the population for its views? Not to my knowledge! They just keep harping on tax cuts, which benefit them and their rich buddies of course, and ignore the issues that matter to the bulk of the population.
    Olga
    18th Jan 2018
    11:58am
    Hi Rainey: Olga G. here. You make a great point and I would like to follow up on this. If you wish to share more of your thoughts re this inequity, feel free to email me at olga@yourlifechoices.com.au
    Thanks for your feedback. Cheers.
    Olga
    18th Jan 2018
    12:01pm
    Hi Imagine: Olga G. here. What a moving anecdote. How sad that people are made to feel ashamed for circumstances not of their making :(
    Anonymous
    18th Jan 2018
    2:21pm
    It's hideous, but it's where Australia is heading, and there are a few on YLC who seem to endorse this horrid social deterioration. The cashless welfare card terrifies me. I've been down, and sadly the system does nothing to help people up. On the contrary, it is suppressive and punitive. I had to cheat to get off welfare. That was a very long time ago and I've more than paid my dues since, even hiring others. But if I had not cheated, I'd still be on welfare and my kids would not be educated professionals. A post in response to another YLC article tells of a man with a young family who, having been retrenched, took part-time work and found himself far worse off than if he had sat back and done nothing.

    Our government needs a wake-up call. The super-privileged making decisions have no idea at all. They are destroying the country. They talk constantly about the ''welfare mentality'' and 'bludgers'' but they are killing every incentive to work, save, and live responsibly. Instead of rewarding the conduct that would build a strong economy and society, they are creating a society in which it is far easier and more comfortable to withdraw from striving and just take handouts. And having given folk strong incentives to give up trying, and doled out punishment to those who do work hard and save, they then wonder why people do what they are being rewarded for doing!
    Jimbo
    18th Jan 2018
    12:08pm
    Hi there all
    I am over 80. I am happy with my superannuation I have small accounts with AMP and Rest.
    What annoys me is the fact that the govt wants to have the boards of the industry funds to include or have members from the retail or bank funds.
    but not the other way round which would make more sense as the Industry funds have lower charges and better returns than the retail and bank funds
    johnp
    18th Jan 2018
    12:17pm
    Yep, in the main for the average person, the industry super funds are the way to go. Generally perform better and lowest fees !! Agree with Rainey. Better off being just below the assets test to get full pension if not in a good fund as many managed fund super returns are not matching the OAP
    Chrissy L
    18th Jan 2018
    12:29pm
    Happy enough with my returns too, but would like to see lower fees. I agree with Rainey's comments however, it is hard to find any logic regarding retirees from this Government. Whatever bit you try to save for your ongoing retirement I think they have a department in Canberra working out a way to grab it off you.
    mogo51
    18th Jan 2018
    2:32pm
    I am with an Industry fund and very happy with my returns, with very low fees as well.
    Knows-a-lot
    18th Jan 2018
    3:35pm
    Maybe the superannuation sector need a Royal Commission into them (along with the insurance and banking sectors); such a Royal Commission needs real teeth and be enforceable.
    Jimbo
    18th Jan 2018
    7:44pm
    To who Knows-a-lot they might need a royal commission into the retail and banking funds but not the industry funds that are doing ok.
    The industry funds could have lower rates if they did not have to pay somewhat higher salaries ( to match the other funds) so that they can retain the well trained reliable capable staff that they now have which give the industry funds the best returns
    East of Toowoomba
    3rd Mar 2018
    9:35am
    This article states above
    "Association of Superannuation Funds of Australia estimates the total value of super is $2.2 trillion (to the end of 2016), which is closer to 130 per cent of the nation’s wealth. Following strong share markets in 2017, that figure has now been exceeded."

    Isn't $2.2 trillion the exact same amount that Malcolm just promised to give to Donald to help them out of a jam?
    johnp
    5th Apr 2018
    12:42pm
    Maybe I am ignorant but havent heard about the
    "$2.2 trillion that Malcolm promised to give to Donald"
    Where can we find more about that ??


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