Fee drop attributed to pressure on retail funds.
In good news for retirees, gross superannuation fees have fallen for the first time in six years, according to research company Rainmaker Information.
Super fund members in Australia are now paying 1.1 per cent in fees on average, down from the 1.2 per cent they were paying in 2018. Total fees in the $2.9 trillion sector are estimated to be $32 billion.
Rainmaker attributes the movement primarily to “retail funds lowering their fees in response to members moving across to lower priced not-for-profit (NFP) funds”.
A Productivity Commission (PC) report into the efficiency and competitiveness of the superannuation system – handed to the Government late last year – found, among other issues, that “while some funds consistently achieve high net returns, a significant number of products underperform, even after adjusting for differences in investment strategy. Underperformers span both default and choice, and most (but not all) affected members are in retail funds.”
It also stated: “Evidence abounds of excessive and unwarranted fees in the super system. Reported fees have trended down but a tail of high fee products remains entrenched, mostly in retail funds.”
The financial services royal commission led by Kenneth Hayne also investigated the superannuation sector and, in February, the Morrison Government approved all nine recommendations relating to fees, multiple accounts, advice and insurance.
The inquiries would appear to be having the desired effect.
The Rainmaker Information super fund fee study analysed fees charged by more than 500 superannuation funds and 50 self-managed super fund administrators.
It concluded that super funds were capitalising on their growth in assets and, as a result, were able to reduce costs for members.
“Super fund fees are approaching an average of one per cent. These reductions show an industry shifting towards a greater commitment to improving super for the members,” said head of superannuation at Rainmaker Information, Jason Ross.
“Australia’s 13.5 million super fund members still pay $2400 on average each year in fees, the equivalent of the average household energy bill.”
Of the 1.1 per cent members pay in fees, 0.7 per cent is paid for investment fees and 0.4 per cent for administration and product-related fees, on average, says Rainmaker.
Members pay different fees depending on their product type, Rainmaker reports:
- Workplace funds, those used by employers, charge an average 1.24 per cent.
- Personal funds, which members can join as individuals, charge an average 1.49 per cent.
- Retirement funds, for members who have retired, charge an average 1.33 per cent.
- Small self-managed super funds (SMSF) charge an average 0.80 per cent.
The fall in gross fees was primarily a result of retail funds lowering their fees in response to members moving across to lower priced not for profit (NFP) funds, the Rainmaker report says.
In 2015, the average retail MySuper product charged 0.24 per cent more than NFP MySuper products. Today the gap has narrowed to 0.04 per cent.
Mr Ross said: “After 10 years of the regulators failing to make considerable impacts on the super landscape, last year’s Productivity Commission and [financial services] royal commission have already started to prove their effectiveness.”
Rainmaker Information is a privately held Australian company and provides marketing intelligence and research on the wealth management industry.
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