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

As funds defend fee rises, senior economist and government minister go on the attack.

Super an ‘inefficient monster’

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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COMMENTS

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JoJozep
31st Jan 2020
10:08am
ScoMo - caught napping on the job again? Why are these increased fees allowed?? What's the weevil Friedeggs doing to limit this greed? Please explain!
Anonymous
31st Jan 2020
12:06pm
Well what can I say other than that a Royal Commission was going to do nothing other than increase fees for consumers.

Remember also they are only the fees they tell you about as there are lots of hidden fees in super too. One is left wondering how much these fees really are when the share market goes up about 24% and the best performing fund is only 18%.
Horace Cope
31st Jan 2020
12:19pm
You may note, JoJoZep, that super funds were set up under legislation called the Superannuation Industry (Supervision) Act 1993 and subsequently updated by the Financial Services Reform Act 2002. Neither of these regulation documents decrees what the fees and charges will be as it was always expected that the market would set the fee structure. Are you aware that Shorten lost the unlosable election? Do you think you should accept that fact?
Anonymous
31st Jan 2020
1:43pm
Horace - WADR - he didn't mention Labrador or Short-on... he criticised the government incumbent for its obvious failings...

It's not all black and white.....
Horace Cope
31st Jan 2020
2:30pm
No TREBOR, he didn't per se, but the epithets attached to the identification of the PM and Treasurer don't really show up as a lover of the current government. Call my comment poetic licence.
Anonymous
1st Feb 2020
1:36pm
First a correction, JoJizep, it sounds more like FriedBurger!
On the other hand, Horace is correct in his responses. I would have gone further - Keating set up this defective Super system to help the rich accumulate massive tax benefits (which they did), and Shorten who was Minister for Superannuation never fixed anything to avoid hurting the rich (including Labor mates). ScoMo in fact brought in the $1.6Mil cap, needs to go harder, but then that should have been a Labor action but they don't care...
We need to get rid of both, Labor & Liberals.

Also, note that a Minister of the Govt, Superannuation Minister Senator Jane Hume, is critical of AustralianSuper’s fee rises. Wonder why? In case many are not aware, AustralianSuper is the default fund where current MPs Super contributions go!!! Talk about self-interest! That's why all Age Pension systems for Politicians MUST be scrapped (thinking about the pre-2004 MPs large defined benefit pensions for life) and they should also receive any benefits same as other people only - then they might actually speak for the people.
bluebottle
31st Jan 2020
10:20am
Fees for my income stream are actually going down this year - 0.3% down to 0.15% capped at $375 p.a.
Rae
31st Jan 2020
11:16am
It's not necessary to employ all these people to do basically what a good low fee index fund manages without fee gouging.
Anonymous
31st Jan 2020
1:45pm
Jobs for the mates again? Ah - that explains it... company cars, credit cards, salaries, get your wife/son/daughter in a 'support' job... and so forth... haven't we been there before?
JoJozep
31st Jan 2020
12:25pm
Bluebottle:

Wow!, "$375/annum" that's fantastic! I pay 13 times that amount per year. If it's not rude, what's the name of the fund and what figure roughly is the fee based on. Also, you say you have an income stream from it. Do you get any capital appreciation, or is it a type of annuity. What percentage does the fund accumulate per annum? Do you select the investment portfolio? Does the fund draw down a fixed amount to pay your income stream, and how long will it last?

Sorry, it sounds too good to be true. I'll swap funds as soon as I have all the figures.
bluebottle
31st Jan 2020
1:00pm
JoJo it's Super SA - SA government employees - not for profit.
It's a market-based fund, so the value changes daily with options to invest over 8 different categories from high growth to cash.
Draw down amount is subject to commonwealth minimum limits depending on age.
Not sure if non-government people can rollover into it.
Fees were 0.3% capped at $700 p.a., but have now halved.
Indirect costs of up to 1% are deducted from unit prices before they're declared (daily).
leoniey
1st Feb 2020
7:58am
Also, another Government one is Q Super which non government employees can now pay in to. Highly recommend this one as I'm not sure anyone other than a Government employee can use Super SA. I'm a member of both. SA Super does not take out the mandatory 15% tax though, which you still have to pay as it happened to me when I had to close my first Super SA Account (plus they charge you the medicare levy regardless of whether you have already paid it so the government double dip on that).
P$cript
3rd Feb 2020
4:19pm
Leoniey on closing Super SA a 15% tax applies. No Medicare levy is charged.

31st Jan 2020
1:41pm
Good to see a 'top economist' is reading what some of us post here...
Priscilla
31st Jan 2020
4:08pm
Robbed again!
morrowj1122
31st Jan 2020
8:40pm
Like the avatar Trebor :)


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