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Choice could cost members

Publication Date: 1 October 2004
Publication:: Superfunds

Members of corporate superannuation funds that stick with their fund rather than moving to a personal retail fund under "choice of fund may end up as much as 34% better off, according to research from The Heron Partnership.

The research claims the retirement benefit for an employee in a small to medium company with 30 years to retirement will be 25% better at retirement in the company fund as opposed to moving to a personal retail fund. If employed in a large company the member may be 34% better off (see table).

Christopher Butler, Heron's Managing Director, claimed the increased benefits are a result of the improved buying power of employers.

"Employees moving from their employer's fund will potentially lose the buying power that comes from being part of a bigger group, which impacts in particular costs and automatic insurance coverage," he said.

But he warned that with choice of fund companies would need to ensure they are able to offer the range and flexibility of options a member can reasonably access at a wholesale price. As a result, Heron believes the outsourcing of company funds to master trusts or industry funds will pick up pace.

Table: Company v retail fund

Employee   A
Age 35		 B
Age 35		 C
Age 45		 D
Age 45
      Increase Over Retail Fund   Increase Over Retail Fund   Increase Over Retail Fund   Increase Over Retail Fund
Current Balance   $50,000   $100,000   $150,000   $200,000  
Current Salary   $40,000   $100,000   $100,000   $200,000  
Retirement Benefit at age 65 Personal Retail Fund $562,017   $1,335,224   $784,545   $1,374,793  
Medium Company Fund $701,608 25% $1,670,740 25% $923,998 18% $1,551,189 13%
Large Company Fund $751,589 34% $1,780,279 33% $968,093 23% $1,619,194 18%

Research assumptions: SG contributions 9% of salary; investment earnings 7% p.a.; salary increases 4% p.a.; CP1 2.5% p.a.; excludes insurance costs; large corporate fund's combined assets total $loom; rnedium com. fund's assets $5m; admin. fee of $65 p.a. doesn't apply to retail fund; excl. tax at retirement. Combined admin., riv. mgt & advice fees: med. comp. fund 1.07%; lge comp. fund 0.75%; retail fund employee A 2.5%. retail fund emp. B&C 2.4%; retail fund emp. D 2.1%.