1st Nov 2018
FONT SIZE: A+ A-
Account-based pensions urged to lower fees
Author: Olga Galacho
account-based pensions have higher fees

Account-based pension managers’ practice of charging higher fees than accumulation phase superannuation funds is being questioned.

And members are being urged by research firm SuperRatings to shop around for a more cost-effective pension fund that isn’t fee gouging.

SuperRatings executive director Kirby Rappell told YourLifeChoices one reason pension funds may have higher administration fees is because they potentially spend more time answering members’ queries once they begin drawing down their savings.

“You are less likely to be ringing up your super fund if it is still entirely in the accumulation phase, because you haven’t begun to be paid an income stream.

“Also the function of organising pension payments may add to administrative costs.”

However, Mr Rappell said given account-based pensions rarely have a life insurance component, it would make more sense for their fees to be more modest than at present.

“We would like to see pension funds’ pricing come down more in line with what accumulation super funds charge,” he said.

Mr Rappell was speaking after SuperRatings released Fund of the Year winners at Tuesday’s annual awards, which recognise excellence in the super and retirement industries.

The top gong was taken by UniSuper, with MySuper of the Year finalists comprising AustralianSuper, CareSuper, First State Super, HESTA, Hostplus, Intrust Super, QSuper, Rest and Sunsuper.

The Pension of the Year winner was QSuper, followed by AustralianSuper, BUSSQ, Cbus Super, Equip, HESTA, Sunsuper, TelstraSuper, UniSuper and VicSuper.

The criteria used to judge account-based funds varies from that used for accumulation funds in three main ways, Mr Rappell explained.

“We look at the underlying tax burden of each account, the fees they charge and the level of flexibility offered to members drawing down their money,” he said.

“For instance, what is the frequency of payments? Is it monthly, fortnightly or weekly? We don’t believe that a member who was used to being paid their wages fortnightly should have to wait a month to get their income once they retire.”

Other metrics used to assess which pension funds offer a better deal include:

  • does the fund allow payments to increase in line with the consumer price index?
  • are drawdowns from certain asset classes limited or does the fund allow the member to decide if payments should come out of the cash, shares or other investments in the portfolio?
  • are beneficiary nominations flexible? Usually, a member who makes a binding nomination must refresh their choice every three years.
  • how long does it take to access a one-off, large payment for an emergency such as unexpected surgery?
  • can you apply for payments online?

Mr Rappell said one of the features that impressed him about QSuper’s account-based pension was that the fund segregates the pension in a way that lends it greater flexibility, including the ability to capture franking credits.

Earnings from funds in pension accounts are not taxed.

Switching out of one account-based pension into another is simple, he said, but cautioned that professional advice from a tax expert should be sought first.

“There are some grandfathering and tax rules that may have punitive consequences depending on what type of fund you are in and how long you have had it,” Mr Rappell said.

However, he added there may be some funds without these disadvantages and he encouraged retirees to do some research to ensure they are not paying higher fees than necessary.

A starting point could be looking up the top-10 pensions of the year, he said.

Would you consider rolling over your account-based pension into another fund if it were to your benefit?

How does your Super affect your overall retirement income? The RetirePlanner™ tool has all the information you need.

RELATED ARTICLES





    COMMENTS

    To make a comment, please register or login
    TREBOR
    1st Nov 2018
    10:57am
    Fees based in the problem with super and with super-funded 'pensions'. What is needed is a reversion to the concept that an organisation funds its costs out of earnings - not out of member nest eggs. Taking fees etc from nest eggs reduces the intended purpose of having a fund at all, and is a 'business style' that has crept into us since the days of 'user pays' and 'fees based banking', all of which are dedicated to profit before customer.

    One roof/one stop shop out of government and corporate hands is the best way to go - we had it once called the Social Security Fund... but governments stole it, spent it and then denied it.
    MICK
    1st Nov 2018
    12:13pm
    "Urged" to lower fees. A bit like Turnbull waving the finger at the banks and summonsing them to Canberra once a year. Laughed at by the bank highly paid CEOs and business as usual. So it will be for the Retail Super Funds which soak up so much in fees to pay themselves and their fellow management team such an exorbitant living.
    REGULATION is the only thing which will fix this and/or Australians voluntarily changing into Industry Funds.
    Watch the vitriole when that happens. Of course the government trolls working this website will have none of that either but they do not have a leg to stand on as everybody knows about Retail Fund fees and charges by now.
    1984
    1st Nov 2018
    2:05pm
    The trolls are the same ones that have their own SMSF & brag about how much they earn interest wise way above the industry funds aren't they lol
    TREBOR
    1st Nov 2018
    2:09pm
    I note that Shortenski and Co have been watching our posts - it seems that the comments from and on diablo (olbaid) The Disappeared have taken root - and now the purge is on over dual citizens using money manipulation between nations to not pay tax on earnings. Also the pursuit is on for Offshorites who rob the till.... with something like an 85% approval so far for this policy idea....

    I did warn him they were hot on his trail ....
    anonysubscribe
    1st Nov 2018
    11:35am
    top gong was taken by UniSuper, with MySuper of the Year finalists comprising AustralianSuper, CareSuper, First State Super, HESTA, Hostplus, Intrust Super, QSuper, Rest and Sunsuper.

    hostplus charges higher admin fees for pension mode.
    once in pension mode, the grandfathered assets test will penalise any transfers.
    TREBOR
    1st Nov 2018
    2:53pm
    Hmm - sounds to me that once you get to pension stage, your money is yours to do with as you choose... maybe you want to SMF it or something... some do - that way they pay themselves the fees, and if you also have other strands you could do better for yourself.

    Another area that needs a long, hard, cold look (barrels of twin .45's)...
    thommo
    1st Nov 2018
    3:10pm
    I understand that Stateplus Super charges members in the pension phase approx .7% for the account fee (for the privilege of having your super invested with them, just like a bank) and about .8% for ongoing financial advice fees.
    These fees are a rip-off, costing a member with $500K almost $10K per year..that's approx $100K over a ten year period...Now that is daylight robbery and our governments do absolutely nothing about it. Why, because they look after the big end of town.
    Retirees lose enough of their super due to bear markets (more frequent that bull markets) and they don't need this fee gouging to contend with on top of these other problems.
    Does anyone know of a super fund with fairer fees structure....
    thommo
    1st Nov 2018
    3:10pm
    I understand that Stateplus Super charges members in the pension phase approx .7% for the account fee (for the privilege of having your super invested with them, just like a bank) and about .8% for ongoing financial advice fees.
    These fees are a rip-off, costing a member with $500K almost $10K per year..that's approx $100K over a ten year period...Now that is daylight robbery and our governments do absolutely nothing about it. Why, because they look after the big end of town.
    Retirees lose enough of their super due to bear markets (more frequent that bull markets) and they don't need this fee gouging to contend with on top of these other problems.
    Does anyone know of a super fund with fairer fees structure....
    TREBOR
    1st Nov 2018
    5:01pm
    7.8% for letting them have your money to invest? That's a rip-off. If they played the short term money market they could maybe cop 12% a DAY .... maybe more.... but they want to charge you for the use of your money? Good work if you can get it.

    This does need a good long hard cold look..... Shortenski? Where are you?? Are you for the ordinary people or are you for your fat cat mates?

    Let's see what you're made of....
    TREBOR
    1st Nov 2018
    5:03pm
    I'll say it again - your accumulated funds at pension phase are YOURS entire... nobody else's - that also means no exit fees. They've had the advantage of it for fifty years and they'll all retire very fat compared to most of the 'shareholders' - enough is enough, and if you want to turn it into a SMF - so be it! Your business at pension phase.
    TREBOR
    2nd Nov 2018
    12:58am
    WELL! It seems that with the imminent demise of the Neo-Conservative Party - the empty headed party of Neo-Thatcherites and Neo-Reaganists - that the board has gone dead.

    Feel the fear... the Winds Of Change are now coming....Fell and Full of Righteous Wrath....

    Where is The Enemy? Fled the field?


    Join YOURLifeChoices, it’s free

    • Receive our daily enewsletter
    • Enter competitions
    • Comment on articles