Rationalisation within the superannuation industry is an anticipated byproduct of the financial crisis, and will further aid the Government’s efforts to bring down fees. As smaller funds crumble under the weight of rising costs, which they are no longer able to subsidise via investment returns, they could look to increase efficiencies through scale. Rice Warner expects the number of industry super funds to reduce to around 25 within the next five years. Theoretically, a large part of the consolidation should happen before June 30, 2010, which is the deadline for CGT Rollover Relief.
Andrew Proebstl, chief executive officer of Legalsuper, which is set to merge this year with two small funds in the legal sector, says increases in product development and communication and member education are all putting upward pressure on costs. “We’re in the process of finalising our budget for the next financial year and once we do that we’ll have a good idea of where our member fees sit but I do notice that quite a number of funds have been increasing their fees in recent times and in many cases much larger funds than our fund,” he says.
“HostPlus is the only one – they’ve agreed to freeze fees at a certain level for a couple of years – so there’s been a bit of movement in fees across the funds and it does generally tend to be upward rather than downward.” There is compelling evidence to show that costs for both administration and investment reduce as both membership and fund assets increase, which ought to translate into lower fees for members. Research from Deloitte titled The efficiency of the superannuation industry reveals that the median investment cost for an industry default fund with $10 billion under management is around 30 per cent lower than that of a fund with $1 billion under management.
The average investment cost ranges from 0.75 per cent for the lower asset bracket down to 0.57 per cent for the higher asset bracket. 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 excluded defined benefit funds, which typically have greater administration costs, was based on data collected by Deloitte for the year to June 30, 2008.