Superannuation fee revenue declines

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Superannuation fee revenue drops for second consecutive year.

Total superannuation fees paid by Australia's 13 million super fund members in 2019-20 have fallen to an industry-wide average of just 1.04%.

This converts to $29.6 billion, equivalent to 1.6% of GDP. On average, this represents $2,400 per super fund member according to research from Rainmaker Information's Superannuation Benchmarking Report.

The fee falls experienced during 2019-20 are significant: an 11% fall in the cost-to-GDP ratio, a 7% fall in the actual fee ratio and a 5% fall in the dollar amount.

Super fund fees falling this sharply contrasts with the 1% fall in the amount of superannuation savings, highlighting significant economies of scale benefits.

These findings are based on a review of 2,720 superannuation products offered by 168 funds, spanning 93 not for profit (NFP) funds, 68 retail funds and 7 eligible rollover funds (ERF).

Super fund members in Australia are now paying 1.04% in fees on average as an annual percentage of their total balance. This is down from the 1.12% they were paying in 2019.

Of the 1.04% average fee paid by fund members, about two-thirds being 0.72% is directed towards investment fees with about one-third being 0.32% for administration and product related fees.

Rainmaker Information emphasised that by comparison, the Future Fund's investment costs of 1.6%, indicates the superannuation industry operates more efficiently.

"Fees have been falling regularly due to  increasing competition, rising use of smart technology that's making superannuation operate more efficiently and significant regulatory reforms that have led to the banning of sales commissions," said Alex Dunnin, executive director of research at Rainmaker Information.

Dunnin said "these factors explain why retail funds are lowering their fees the fastest. But it must be acknowledged that they are just catching up with the NFP super fund segment that has been charging lower fees for a long while."

"Nevertheless, as a result of these fee reductions, Australia's lowest cost super funds are now charging fund members as little as just 0.6%. Long gone are the days when super fund members had to pay fees of 2% or more."

"If consumers want sharply priced superannuation there are many products for them to choose from, whether they wish to use a not for profit or retail super fund," said Dunnin.

"With the increase in super fund merger activity, fees are likely to continue to fall due to scale benefits and an increase in activity to compete with the resulting lower fees," he said.

On average, NFP funds offer the lowest cost superannuation. The average total expense ratio (TER) for NFP funds in FY 19-20 was 1.07% while the average TER for retail funds was 1.31%.

NFP funds were found to charge an average 0.32% less than retail funds for administration, but retail funds were found to charge an average 0.09% less for investment fees.

Members pay different fees depending on their product type:

  • Workplace funds, those used by employers, charge an average 1.12%.

  • Personal funds, that members can join as individuals, charge an average 1.26%

  • Retirement funds, for members who have retired, charge an average 1.12%

  • Self-managed super funds (SMSF) charge an average 0.77%

While it is great news for fund members that super fund fees are falling, Dunnin said "in an environment where super fund returns are under pressure and the Australian economy is in a COVID-induced recession, we need to ask whether super fund fees should be even lower."

"For example, given investment costs account for two-thirds of super fund fees, switching from active investment management to indexed investment management could cut fee fees by nearly two-thirds from 1.04% down to 0.44%."

"But if this reduces long-run investment returns this could be counterproductive, plus switching to primarily indexed investments could make superannuation more linked to the fluctuations of listed markets," said Dunnin.

Australia's lowest cost MySuper products
Product name Segment Open to the public? TER
ANZ Staff Super NFP No 0.63%
Bendigo SSSE Retail Yes 0.67%
ANZ SCS Emp Retail Yes 0.68%
Virgin Super Employer Retail Yes 0.72%
QSuper Accumulation NFP Yes 0.74%
UniSuper NFP No 0.74%
Meat Industry Employer Super NFP No 0.79%
CBA Group Super AP NFP No 0.83%
AustralianSuper NFP Yes 0.87%
AMIST Emp NFP Yes 0.88%
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