Not-for-profit superannuation funds will struggle to deliver low-cost products to market, despite the government’s intentions with reform, according to Nathan McPhee, chief executive of SuperRatings.
“The fee position that industry and not-for-profit funds have held for so long is effectively gone. There’s an enormous cost pressure that’s building in this industry,” he said at AIST’s recent Employer Engagement Symposium.
“We look at cost quite closely within superannuation and an average cost per member of managing an average account [in institutional] was nearly $180 last year. That’ll push past $200 no doubt this year. Obviously different demographics will push those in different areas.”
The figure has nearly doubled over the last five years, he added, rising from $100.
“The other thing to consider is that the banks – and the wealth businesses in the banks in particular – have cross-subsidisation opportunities that aren’t available to the funds.”
McPhee said super funds are hit with the additional expenditure of brand, marketing and business development of their products, including low-cost ones, in their operating costs.
“I would warn those not-for-profit funds that have positioned themselves as being cheap that you really don’t have much of a future with that because cost pressure will come through to bear and you’re going to have to look at your value proposition.”
Chris Davies, executive manager of member and employer solutions at UniSuper Management, agreed there is significant pressure on costs, saying it shows through the work the fund has been doing on Stronger Super and in increased member engagement.
“The cost pressure is there. So working to get our productivity up and continuing to grow the scale of the fund, largely through retention activities, is really going to be a very significant issue for us, as no doubt it will be for other funds,” he said at the symposium, adding that management is looking to reduce cost pressure.
Davies argued MySuper will result in more publicly available data on costs that is transparent and will lead to greater competition with retail organisations.
“However, the other side of the coin is significantly increasing our engagement. Because we simply can’t go out and say we’re cheaper, we’re here, we’re waiting for you. We have to approach them, contact them, and that’s where the marketing will come in very significantly.”
McPhee believes not-for-profit funds will have an area of competitive advantage in insurance due to advantageous arrangements.
“We’re seeing pretty simplistic insurance arrangements.
So lifecycling, simple death and TPD insurance – in many instances, income protection is not included in these products,” he said.
However, he warned of a lot of upward premium pressure coming to market.
“Depending on how much was actually passed on direct to consumers, there could 20 to 40 per cent downward pressure on retail insurance premiums.”