Number of ERFs has halved – still holding over $5.1b in assets

Released: 26 March, 2014

Heron’s 9th ERF assessment released

Eligible Rollover Funds (ERFs) have been the resting place for small account balances, lost members assets and unclaimed monies for many years. Most super funds utilise the service of an ERF to help them track down, reunite or house those members and their assets. Money in ERFs represents a material slice of superannuation monies. There are currently 8 ERFs who have received the APRA ERF licence with effect from 1 January 2014. This is half the number of ERFs that existed 5 years ago.

The Heron Partnership, independent superannuation and actuarial consultants, undertakes research into the ERF market on an annual basis. This is the 9th occasion that Heron has undertaken their ERF research.

The Heron Partnership’s Managing Director, Chris Butler, said “The combined assets in ERFs at the time of our latest assessment were $5.1 billion, which was a decrease of around 4% from the assessment undertaken last year. The number of member accounts also decreased, more significantly though, by 13.2% to around 4 million.”

Transfers to the ATO for small lost accounts before 30 June 2013 represented in excess of $356 million for over 629,000 accounts. Accounts that were relocated to active super accounts totaled $224 million for over 180,000 accounts due to ERF initiated programs. The ATO stands to take more assets and accounts over future years if the proposed raising of thresholds for lost member accounts is implemented.

Mr Butler said, “It is proposed to increase the transfer threshold to $4,000 from 31/12/2015 and $6,000 from 31/12/2016. This will decimate many of the ERFs given that 90% of accounts are under $2,500. We live in hope that the ATO will have a proactive role in tracing these monies to an active superannuation account, rather than simply a gain to general revenue.”

ERF Fees

Analysis of fees illustrates that ERFs that charge only an asset based fee, with no dollar fee being deducted, is the most appropriate structure for small account balances. ERFs that charge a dollar fee range from $8 pa to $17.52 pa. These are high costs as a percentage of a small account balance. For example, a $17.52 annual fee is 17.52% of a $100 account balance, or 3.5% of a $500 account balance. Three ERFs do not charge a dollar fee; AMP ERF, SMF ERF and SuperTrace. While the average dollar fee (excluding asset based fees) charged by MySuper products is $75, the ERF dollar fees are significantly lower. Yet even so, they do sting the members with smaller balances. Hence, our preference is for a fee structure which is only asset based and is deducted prior to determination of the crediting rate. Member protection was removed with effect from 1 July 2013, meaning that ERFs could previously not deduct more from a member account than was credited in interest. This applies more pressure and importance to the fee construction.

Research Findings

Highlights of Heron’s assessment included:

• A 13.2% reduction, since last year, in the total number of ERF members, now at 4,108,668. Last year the reduction was only 0.29%, so the momentum has significantly increased mainly due to the transfer of small lost accounts to the ATO.

• A decrease of 3.9% in ERF assets, to a total of over $5.1b of assets. This is still a significant amount of money.
• 12 ERFs existed last year and that is now effectively 8. This number has halved from 2008 when 16 ERFs existed.
• The two largest ERFs by membership numbers appear to be the most proactive and innovative in relocating and engaging their members. SuperTrace relocated 6.8% of assets whilst AUSfund relocated 8.7% of the accounts they held to active accounts. In total $224 million moved from the ERF environment back to active superannuation funds, which was a total of 180,881 accounts. The issue still seems to be apathy from members in checking if they have any lost money and the proactive approaches by the ERFs is delivering results. Individuals must be treating potential lost money like a gift card that they are happy to let expire!
• AERF achieved the highest declared crediting rate of all ERFs with 12. 7%, slightly ahead of AUSfund who credited 12.4%. Both are excellent results.

• With the removal of some of the more expensive ERFs from the market, the average fee charged by the remaining ERFs has dropped significantly. For example:
  • On a $500 account the average fee is now 3.21%, and was 4.49% last year (a 1.28% reduction);
  • On a $1,000 account the average fee is now 2.59%, and was 3.53% last year (a 0.94% reduction);
  • On a $2,000 account the average fee is now 2.09%, and was 2.92% last year (a 0.83% reduction).

• The average account balance size has been increasing as smaller balances are being transferred out to the ATO. Only AMP has experienced a decrease in the average account balance, presumably due to taking over the NPT assets last year. The average balances do become distorted by the small number of very large account balances. We estimated that over 90% of all member accounts are below $2,500.