Super fund fees fall to 1%

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Super fund fees fall to 1% and are on track to keep falling

Average super fund fees have continued to fall, dropping 3% during the 2020/21 financial year. As a result, total fees paid by Australia's 13.5 million super fund members is still below $30 billion.

This is despite a 10% rise in superannuation savings last financial year and record-breaking investment returns where, despite COVID-19, returns were at a record-high in 34 years, according to Rainmaker Information's latest Superannuation Benchmarking Report.

Explaining the fall in super fund fees, Alex Dunnin, executive director of research and compliance at Rainmaker Information, said "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."

"Six in 10 default MySuper products cut their fees in 2020/21," he said.

"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," said Dunnin.

"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," he said.

Retail fund admin fees were 3.5 times that of not-for-profit funds in 2010. This ratio has now halved but remains at 2.0 times.

"The cheapest retail funds are now as low-cost as the cheapest not-for-profit funds. Four of the 10 cheapest MySuper products are retail."

While overall fees average 1.0%, fees for the flagship default MySuper sector averaged 1.08% after falling from 1.13% in 2020. The fee gap between not-for-profit funds and retail funds is closing fast with the average total expense ratio for not-for-profit and retail funds now being almost identical, at 1.07% and 1.08% respectively.

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

"For the average Australian, these lower fees translate into them getting better value from their super funds. The average Australian pays about $2,200 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."

"Sixty percent of default MySuper products reduced their fees in the last year, and these funds represented three-quarters of all the members of these funds," said Dunnin.

Rainmaker expects the pressure on super funds to lower their fees will only intensify, and because investment costs make up a huge share of the superannuation fees fund members pay, this will force funds to change the way they 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 Dunnin.

Rainmaker's research shows that indexed super fund investment options currently charge investment fees that average just 0.12%.

"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%. Australia's sharpest priced funds by then could be charging total fees below 0.5%," said 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 2,683 fee options offered by 175 superannuation products.

10 lowest cost MySuper products open to the public, 2021:

Ranking

MySuper product

Total expense ratio

1

UniSuper

0.65%

2

Bendigo SSSE

0.70%

3

AMG Corporate

0.70%

4

Virgin Super Employer

0.73%

5

QSuper Accumulation

0.74%

6

Suncorp ESB

0.77%

7

AustralianSuper

0.77%

8

AMIST Super

0.81%

9

Rest Super

0.89%

10

EISS Super

0.89%