Axing commissions not enough to meet Government’s super fund fee target: Heron

Released: 18 June, 2009

Removing commissions from current superannuation products will not be enough to bring average fees below the Government’s 1% target, according to research undertaken by superannuation consultancy The Heron Partnership.

Heron researched 117 major retail and industry superannuation products and found the current average fee is 1.27% for an account balance of $50,000. For an account balance of $25,000 it is 1.35% and for $100,000 it is 1.22%.  Importantly these fees exclude any fees paid for financial advice.

The Heron Partnership’s Managing Director, Chris Butler, said “Superannuation funds typically charge administration and investment fees.  These fees vary from fund to fund and are also dependent on an individual’s fund balance and investment structure.  Of the 117 superannuation products analysed, based on an account balance of $50,000, 68 would need to restructure their fees to be at 1% or less.  A lot of work therefore needs to be done if the Government’s target is to be met!”

Heron’s analysis includes administration fees, and investment fees based on each fund’s balanced/growth investment option, which as categorised by The Heron Partnership, has 65% to 79% invested in growth assets.  This category includes the default option for most superannuation funds and therefore covers about 80% of fund members.  The research included 65 industry funds/divisions and 52 retail products.  Corporate funds have not been included as their fee structure is very dependent on a number of factors specific to the employer, including the type of fund, membership and asset levels, number of payroll sites, etc.  However, as an indication, corporate fund fees are typically around 0.70% to 1.00%.

To illustrate the impact of fees Mr Butler said, “As a consequence of the varying fee structures, there is a considerable difference between the retirement outcomes of the various products.  For example,if you take a membership period of 40 years and assuming the same contribution and investment returns, the lowest cost industry fund and the lowest cost retail fund produce retirement benefits at age 65 some 15% greater than the average fund in their classification."

“Due to the variance in features, investment returns and overall costs between super products, a holistic assessment has to be undertaken.  Only looking at costs or past investment returns, for example, is not sufficient to select the super fund that potentially the individual will be connected with for 40 or more years.  We therefore recommend that individuals seek advice from a financial planner to assist them select the product that best suits their requirements”, Mr Butler said.