Why your super fees are high and set to get even higher

Blame COVID-19 and a royal commission, but your super looks set to cost your more.

Super fees ‘high’ and set to get higher

Superannuation members pay a collective $32 billion in fees each year but fee increases are a very real prospect, according to Mercer interim chief executive Jo-anne Bloch and Rice Warner.

That “very real conversation” was happening between Mercer and its funds as a result of shrinking account numbers and the plundering of many accounts under the government’s early super release scheme.

More than $13 billion has been withdrawn from super accounts since the government permitted fund members experiencing hardship due to COVID-19 to access up to $20,000 and Ms Bloch said close to 100,000 superannuation accounts had been completely drained of savings.

She said conversations relating to fee increases started more than a year ago as a result of the Productivity Commission and financial services royal commission recommendations to reduce multiple accounts in the $3 trillion system.

Forgotten accounts were yielding about $2.6 billion annually and subsidising the administration costs of the broader super pool. That was no longer happening and the volume of super transactions had also increased as COVID-19 triggered a wave of customers switching investment options, forcing funds to rejig their portfolios.

“It’s a difficult situation. Everything is going up except membership,” she told the Australian Financial Review.

Superannuation consultancy Rice Warner warned in March that fees charged by super funds might have to rise. It said that most funds subsidised their operational costs, at least to some extent, from asset-based fees on their investment portfolio. As markets fall, so too does fee revenue, it said.

“These contributions to fee income will have fallen considerably, and several funds will now be in a position where they will need to cut services or increase member fees.”

Meanwhile, there is a long line of critics ready to blast the fees currently applied by many funds.

Leith van Onselen, chief economist at the MB Fund and MB Super, says our superannuation system is highly inefficient. “Australia’s management fees are among the highest in the world with Australian households spending twice as much each year on superannuation fees as they do on electricity,” he told MacroBusiness.

“The number of people employed in the superannuation industry is also astronomical, dwarfing Australia’s entire welfare system and on par with our entire defence force and its bureaucracy.”

Australia has one of the biggest pools of funds under management (FUM) and that “defies the notion of ‘economies of scale’,” he said. “That is, as FUM grows, management fees should shrink proportionately.

“… it should cost superannuation funds little more to manage $3 billion of FUM than $300 million of FUM. Accordingly, average management fees should have shrunk as Australia’s superannuation savings pool has grown nearly exponentially.

“The upshot is that Australian households are being milked for fees ...

“Clearly, the massive honey pot of fees available under compulsory superannuation has created a giant parasitic industry. Lifting the superannuation guarantee to 12 per cent would only feed this monster, creating a bigger pool of FUM available for super funds to drain.”

Alex Dunnin, director of research and editorial at Rainmaker, said the average fee on super funds today is about 1 per cent and trending lower, but that many people were stranded with much higher fee products.

Liberal Senator Andrew Bragg has taken aim at not only fees but also the entire superannuation system in his newly published book, Bad Egg: How to Fix Super.

Senator Bragg says the super system needs “drastic surgery”, does not work hard enough for its members and the fees are too high.

Do you understand exactly how much you are paying in super fees? Are you happy with those fees?

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    COMMENTS

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    Travellersjoy
    5th Jun 2020
    10:57am
    I am in an industry fund and the fees are reasonable. The services provided are also proportionate and I couldn't know if their staffing levels are appropriate. On the whole, people in jobs doing worthwhile work are a national asset. Not sure I would trust my super to the management of robots just to reduce fees - look at what happened when the Liberal government tried robo-debt to save tax payers money. Cost us a fortune to set up, operate, now compensate for - all to put some Australians out of work.

    Lots of big general claims here but no evidence as to value for my money. My bank charges much more proportionately for my credit card while providing considerably less value. Why not help people by really fixing the banks?
    Mariner
    5th Jun 2020
    11:16am
    If you pay too much for your credit card you are not treating it the right way. Keeping mine slightly in credit at all times and just pay my yearly charge which is negligible. Some cards might even be free. Had to use mine a lot in the last 3 months as shops are reluctant in taking my cash. I do not think the banks need fixing now as they have become a lot better.
    Youngagain
    6th Jun 2020
    4:23pm
    Credit cards are free if you use them correctly, and a wonderful convenience. I pay $95 per year in fees, get a couple of hundred dollars in reward points annually (more than compensating for the fees) and zero interest because I pay the full balance every month on the due date.
    Priscilla
    5th Jun 2020
    11:25am
    Agree with senator Bragg.
    Mariner
    5th Jun 2020
    11:29am
    They tried to fix Super since it was first introduced and the constant changes and fixes to date undermine people's confidence in the system.
    floss
    5th Jun 2020
    11:30am
    The early release scheme was panic policy and could turn out a disaster for some.Most of the money released was wasted.
    Horace Cope
    5th Jun 2020
    12:10pm
    Allowing early release for those who have no income, no savings and need funds to feed a family does not seem to be a "panic policy", floss. How have you arrived at the ridiculous statement that "most of the money released was wasted."?
    Eddy
    5th Jun 2020
    6:55pm
    Statistics Horace, Don't you read or listen to the news. Statisticians have calculated that of the money released from super, 64 per cent went on discretionary items such as clothing, furniture, restaurant food, gambling and alcohol. I do not know how the statisticians work this out but even if there is a reasonable degree of error (say 3%) it is still a frightening statistic. Look this up,.
    https://www.abc.net.au/news/2020-06-01/superannuation-withdrawals-spent-on-gambling-alcohol-takeaway/12306710
    Horace Cope
    5th Jun 2020
    12:07pm
    "Do you understand exactly how much you are paying in super fees? Are you happy with those fees?"

    We are in an industry fund and are kept informed of how much we are paying in super fees. We understand that there must be fees for investing funds to achieve a return and the fees are generally less than the return on funds. We choose not to have an annual visit and there is a considerable saving in fees with that choice.
    Viking
    5th Jun 2020
    6:06pm
    OMG! Horace Cope in an industry fund! That's not one of those terrible union managed things is it Horace which outperform those private sector LNP backed funds is it?
    Knoxey
    5th Jun 2020
    12:30pm
    I offer sympathy to those who don't pay off their credit card purchases as per monthly statements.
    As for me I have never paid interest on any credit card as I pay off the full statement debt when due. The only cost is the annual fees and being in a reward program, the rewards pay those fees off anyway, so in effect the credit card (ANZ Premium Reward) costs nothing.
    I am on a part aged pension and can still manage the monthly credit card debt.
    What really bugs me is that my wife works part time and pays 15% tax; If I earn more than the Centrelink allowed amount I also pay 50% tax, sorry, reduction in my pension for every dollar my wife earns. So in effect this family pays 65% tax on my wife's earnings.
    As an aged pensioner (76 yrs) I am in one of the highest tax brackets in this great land of Oz ... What a joke. I think I will try to become a politician ... their lerks & perks know no limits !!!!
    panos
    5th Jun 2020
    1:46pm
    Well knoxey you have nothing to worry about, glad the tax man is getting you to the tune of 65% tax on wifes earnings.

    Great to see your well off with nothing to worry about
    floss
    5th Jun 2020
    2:37pm
    Try reading the reports if you a capable NO COPE.
    Daveh
    5th Jun 2020
    3:59pm
    Fees are based on a percentage of the balance of my account. If there are less accounts then the number of people to manage them should be less ie less cost. Like everyone else fund managers if they have less income should not expect to be the fat cats they were and need to pull in their costs according to revenue not just think the long suffering account holders are there to be milked.
    Daveh
    5th Jun 2020
    3:59pm
    Fees are based on a percentage of the balance of my account. If there are less accounts then the number of people to manage them should be less ie less cost. Like everyone else fund managers if they have less income should not expect to be the fat cats they were and need to pull in their costs according to revenue not just think the long suffering account holders are there to be milked.
    auldtic
    7th Jun 2020
    12:01pm
    If you're in any superannuation fund, particularly an industry fund, you should take note of Senators Andrew Brag, Jane Hume and MP Tim Wilson. They seem to have an ideological detestation of current superannuation system in Australia


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