Senator Nick Sherry, Minister for Superannuation and Corporate Law, has told the superannuation industry in no uncertain terms: reduce the average super account fee from 1.25 per cent to 1 per cent or less. Sherry says he wants to see the reduction within the next three to five years, and has made it a central part of his review of the super industry. The average super fee has not come down in any significant way in the last decade, despite the compulsory superannuation pool growing to more than $1 trillion in assets.
“Why do I believe [the average fee] should come down? It’s barely moved in the last 10 years; assets under management have quadrupled over that 10-yearperiod, and all pension theory and practice in other countries with compulsory DC systems [reveals that] total fees have come down over time as assets go up,” Sherry says. “An average [fee] of 1.25 when your average long term rate of return is 5 per cent – obviously diverting more into return will leave individuals better off in terms of their total savings.” It’s important to note that many of the industry funds who have raised fees recently are still sitting below Sherry’s target.
But for those that are well above it, in part due to the fact that they include the cost of advice or commissions within their overall charge, reducing fees will be no mean feat. According to Rice Warner, the average fee as a percentage of assets for a $50,000 account ranges from 0.69 per cent for public sector funds to 2.04 per cent for corporate super master trusts, which include the cost of advice within the total fee.
Steve Tucker, chief executive of MLC, says it’s essential to separate the cost of advice from the product to ensure a fair comparison between different super funds. “If you take the commission costs aside, which we recommend people do, because that is a cost for advice, not for supporting a superannuation product, then most clients are already paying less than 1 per cent,” he says. “If we can clearly separate the costs of funds management, the cost of the administration service or platform and the cost of advice, and each part of the value chain can articulate the value they bring for the price they charge, then the client can make an informed decision as to whether they want to pay for all or some of those things.