Super setback, but fees fall and it's likely to continue

For the first time in a year, superannuation funds have lost value, but the bad news on returns was offset by some good news on falling fees.

According to Rainmaker Information, average super fund fees dropped 1 per cent during the 2020-21 financial year.

Rainmaker’s executive director of research, Alex Dunnin, said that super funds reported a 10 per cent rise in savings last year and record-breaking returns, but were still feeling the pressure to drop their fees.

Read: The changes that could take our pension system from B+ to A

“Super funds are working hard to become more efficient and lower their costs, but at the same time white-hot competition and regulatory scrutiny is forcing them to cut their fees as fast as they can,” Mr Dunnin said.

Six in 10 default MySuper products cut their fees in 2020-21.

“Driving average fees down so quickly is how the traditionally higher fee retail superannuation sector has been innovating and catching up with the generally lower-fee not-for-profit sector,” Mr Dunnin said.

“Retail superannuation funds have experienced the biggest fee drop in the past decade as a result of significant reductions in administration fees across the sector.”

Read: What to do if your super fund is underperforming

Retail fund fees were 3.5 times higher than fees of the not-for-profit funds in 2010. The retail funds still have much higher fees compared to that sector, but they are now only double the fees of the not-for-profits.

The trend is good news for Australia’s super fund members. Superannuation fees overall have fallen by a quarter over the past decade, with almost half the decline happening during the past three years.

“For the average Australian, these lower fees translate into them getting better value from their super funds,” Mr Dunnin said.

“The average Australian pays about $2200 annually in fees. While that’s gone up a bit in dollar terms, so has their account balance. And let’s not forget the record investment returns their super funds have delivered to them.”

Read: The super funds that are growing fat on your nest egg

The introduction of the Your Super, Your Future legislation is expected to intensify the pressure on super funds to continue to lower their fees, with Mr Dunning explaining that it could also change the way that funds invest.

“Products charging high fees will experience huge market and political pressure in the wake of the Your Future, Your Super reforms to cut their fees. To do this, funds will have to consider indexing a bigger share of their portfolios,” said Mr Dunnin.

Rainmaker’s research shows that indexed super fund investment options currently charge investment fees that average just 0.12 per cent.

“This pressure on super fund fees, if it stays on its current track, could mean that in five years’ time, average super fund fees could be as low as 0.85 per cent. Australia’s sharpest priced funds by then could be charging total fees below 0.5 per cent,” said Mr Dunnin.

“If this was to happen, Australia could be on track to have one of the best value superannuation fund systems in the world.”

Rainmaker’s 2021 fee study is based on a review of 2683 fee options offered by 175 superannuation products.

September’s super slip
Rainmaker’s good news on fees came as superannuation research house SuperRatings announced that the average balanced superannuation option lost 1 per cent in value in September, the typical growth option lost 1.3 per cent and the median capital stable option lost 0.5 per cent.

According to SuperRatings, the negative returns for September were the result of ongoing geopolitical uncertainty affecting domestic and global share markets and heightened concerns about the economic outlook in China.

Pension returns also fell in September.

The median balanced pension option lost 1.2 per cent in September, although annual returns remained strong rising 19.4 per cent over the year.

The median pension growth option lost an estimated 1.5 per cent in September and the median capital stable option lost 0.7 per cent for the month.

SuperRatings executive director Kirby Rappell explained that many funds had downside protection strategies in place to smooth what could be a bumpy ride in shifting share markets.

“Calendar year returns to the end of September are sitting around 10 per cent for members in the median balanced option, reflecting that despite any emerging volatility, super funds seem on track for a strong calendar year return for 2021 and performance that is well in excess of their long-term objectives,” Mr Rappell said.

How did your super fund perform in September? Are you worried the September result could be the start of a downward trend or do you think it is just a blip on the radar? Why not share your thoughts in the comments section below?

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Written by Ben



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