Stronger Super will only succeed in reducing fees by 0.1 per cent and further competition is needed to match the low investment costs achieved in other countries, a damning report from the Grattan Institute has claimed.
The report entitled Super sting: how to stop Australians paying too much for superannuation is authored by Jim Minifie, a director at the Grattan Institute, who states that Australian’s are paying $20 billion annually in fees and expenses and that this should be reduced to $10 billion, which could boost retirement incomes by 20 per cent.
Minifie says: “We are used to accepting fees of 1 or even 2 per cent of balances a year as reasonable figures. We need to learn from international experience and target fees at 0.5 per cent of funds under management, at most.”
He believes the Stronger Super reforms do not sufficiently encourage competition on fees as most employees and employers remain disengaged.
“Many [employers] are no more engaged or informed about superannuation than are their employees,” he says. “Some may select funds that offer a broad range of options at high cost to employees. Some may consider their own costs and benefits before benefits for their staff.”
He proposes that only default funds with the lowest fees be allowed to tender to employers.
This model is used in Chile and New Zealand, where funds compete on price for the right to tender to employers for a set period of two years.
Minifie calculates the average fee for superannuation (including self-managed funds) is 1.19 per cent and contrasts this with investment fees of 0.04 per cent for the Thrift Savings Plan in the US, 0.22 per cent for Sweden’s AP7 and 0.38 per cent for the UK’s Nest.
This compares to MySuper fees of 0.9 per cent for Unisuper, 0.85 per cent for AMP Flexible Super, 0.84 per cent for AustralianSuper, Sunsuper and REST, 0.65 per cent for QSuper for an account with $50,000 according to Chant West research.
The report comes as a backdrop to the argument over the award of employer’s defaults by the Fair Work Commission expert panel.
The Financial Services Council is considering legal action against the Fair Work Commission on the validity of its Expert Panel.
This is in response to a statement from Iain Ross, president of the Fair Work Commission, which denied the FSC’s request for a hearing on the validity of the Expert Panel for default superannuation funds and a one week extension for MySuper submissions.
John Brogden, chief executive of the FSC said: “It is an extraordinary circumstance where the President of the Fair Work Commission appointed himself to the Expert Panel and is now using that as a defence on why a hearing cannot occur.”
“This process does nothing but continue the status quo of the union-backed industry fund’s monopoly on the default superannuation market,” Mr Brogden said.