Actuarial firm Rice Warner has warned the superannuation industry is fraught with incorrect and misleading commentary on the level of fees for super funds, saying the focus should be on value.
Rice Warner highlighted the example of the Productivity Commission statement that Australians are paying over $30 billion a year in fees, excluding insurance premiums, however, the real figure is $8 billion below this.
Publisher Rainmaker has also been quoted claiming fees of $30 billion, likely through including insurance premiums.
Further, the Grattan Institute has made public statements affirming the $30 billion myth and stating the average Australian spends more on superannuation than electricity.
“Hysterical headlines emphasising the total fees of ‘tens of billions of dollars’ are misleading, as are comparisons to the electricity market,” Rice Warner said.
“We need to change the focus to value, not cost.
“Do people know that the Australian super system has provided much higher real returns – 5.1 per cent above the consumer price index after tax and fees – over the last 23 years than any other country? And members get intra-fund advice, cheap life insurance and choice of investment strategies too.
“The media headlines are sensationalistic, but it is less exciting to report that there has been a 27 per cent fee reduction over 15 years or that the whole industry is run at a cost less than the combined annual profits of the four big banks.”
In addition, an unhealthy focus on fees rather than value can lead to poorer outcomes for consumers, it said.
“Take for example a recent start-up in the choice super market, which advertised that its fees were below the industry average and [thus] suggests members may be funding industry fat cats,” it said.
“Though its fees are at the industry average, which is better than most start-ups, the fund invests the money in low-cost index funds, an investment vehicle that an efficient super fund, such as Hostplus, can provide for 0.06 per cent per annum.”
The firm said it believes many changes from this year’s federal budget and the Productivity Commission’s likely recommendations will make the industry more efficient.
“This will happen as the underperforming and expensive funds are weeded out,” it noted.
“We have yet to realise the benefits of scale and improvement in technology, which will give even better value for money for members.”
The latest annual Rice Warner “Superannuation Fees Report” found average super fees have finally dropped to 1 per cent of assets, or $22.4 billion for the year ended 30 June 2017, demonstrating the super system has become more efficient as it has matured.
