The benefits of scale for large super funds have been quantified in research to be released soon by Deloitte, with the median investment cost for a fund with $10 billion under management around 30 per cent lower than a fund with $1 billion under management.
Research by Deloitte titled: The efficiency of the superannuation industry, reveals that the average investment cost for an industry default fund ranges from 0.75 per cent for funds with less than $1 billion under management down to 0.57 per cent for funds with greater than $10 billion under management.
Furthermore, the median administration cost of an industry default fund with 500,000 or more members is half that of a fund with less than 50,000 members. Deloitte found administration costs, expressed as a weekly dollar figure per member, were as high as $2.18 for the lower membership bracket and as low as $1.08 for the higher membership bracket.
The research, which covered 60 industry funds and has not yet been publicly released, was based on data collected by Deloitte from publicly available information on websites and in annual reports.
Administration costs were analysed separately to investment costs, and each category was divided into four sub-categories.
On the administration side, funds were divided into brackets based on the average membership – less than 50,000 members, between 50,000 and 100,000 members, between 100,000 and 500,000 members, and greater than 500,000 members.
On the investment side, funds were divided into asset brackets: less than $1 billion under management, $1-2.5 billion, $2.5-10 billion, and greater than $10 billion.
Wayne Walker, partner at Deloitte Actuaries & Consultants, said the research confirms there are cost savings that come with scale.
“I think that says that there are scale economies in super, and they’re not a death sentence for smaller funds, but they do mean that the smaller funds need to deliver value, and that might be because they’re closer to the members [or] it’s a more personalised service,” he said.
“You can’t ignore the realities that there are some savings that come with size.”
However Bill Buttler, associate director of Deloitte Actuaries & Consultants, said it was important to note that investment costs relate directly to the services provided and approach taken by the fund.
“For example on investments, some funds have a particular approach that might involve managing direct property or infrastructure where the costs of management might be higher than for listed assets, but the trustees clearly see there’s a benefit in better returns that are achieved,” he said.
“We think the analysis is still valid because these costs reflect what the average member in the default option would be paying, effectively.”
There are around 72 industry funds in
