Industry superannuation fund UniSuper says it could retain thousands of additional members each year after significantly reducing its fees for members with low account balances.
The move is one of a number of sweeteners introduced by the industry super sector in the wake of the Hayne Royal Commission, boosting their appeal at the same time as retail super funds deal with a torrent of negative publicity and a potential exodus of disgruntled members
UniSuper has “definitely” seen a faster inflow of members since the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry turned its attention to superannuation, UniSuper chief executive officer Kevin O’Sullivan told Investment Magazine.
The $72 billion fund in August said it would replace its fixed $96 annual membership fee with an annual fee of the lesser of $96 or 2 per cent of the member’s account balance.
But the inflows might be due to other factors such as strong investment performance or a new policy introduced last year which allows family of existing UniSuper members, as well as former UniSuper members, to join the fund, O’Sullivan said.
“Up until recently we charged members–whether you had $200 million or $200 in your account–the same administration fee, and that’s how we interpreted the MySuper rules,” O’Sullivan said. “But within a couple of years you will be left with zero if you had $200 in your account.”
This would remove the erosion of small account balances as an issue, he said.
Previously UniSuper has been writing to members with low account balances and recommending they join an eligible rollover fund to preserve their remaining capital, leading to an outflow of 6000 to 7000 members each year, O’Sullivan said. This change would allow members with low balances to stay with UniSuper with minimal erosion of their funds.
The catalyst for the move was the Federal Government’s ‘Protecting Your Super Package’ introduced as part of the May budget which would cap fees in superannuation funds at 3 per cent per annum for account balances less than $6000, O’Sullivan said.
UniSuper had also fully funded its Operational Risk Reserve as part of legislation introduced in 2013, and this freed up funding to offer benefits to members, O’Sullivan said.
The change would impact about 100,000 members with less than $4800 in their account, O’Sullivan said.
He declined to comment specifically on the proceedings of the royal commission as its interim report had only just been tabled and there hadn’t yet been time to form a view. But he said the superannuation industry was facing a period of inevitable change.
“There will be changes flowing from the federal budget back in May, there is the Productivity Commission’s report [into the superannuation sector] due at the end of this year…and the royal commission’s findings will likely lead to change,” O’Sullivan said. “So when you consider all that, the likelihood of maintaining the status quo is small.”
The industry superannuation sector has stepped up its criticism of for-profit funds in recent months and a offered a range of sweeteners to members.
A Roy Morgan survey released this week revealed that in the six months to August 2018, the satisfaction with the financial performance of industry funds was well ahead of retail funds for all balances over $100,000, with an average of 71.5 per cent, compared to 63 per cent for retail funds.
Over the last 12 months, industry funds had an overall gain in satisfaction of 3.9 percentage points, ahead of the 0.9 per cent point improvement for retail funds.
Last week the peak body for the profit-to-member superannuation sector–the Australian Institute of Superannuation Trustees–released a report by consulting and research firm Rice Warner which found Australian workers who invest their superannuation in funds outside the MySuper sector could be up to $50,000 worse at retirement.
AIST chief executive Eva Scheerlinck had earlier in September called for retail banks to be stripped of their ability to offer MySuper products following abuses of member funds revealed during the Hayne Commission.
In September, IFM Investors–the global funds manager owned by industry super funds–said it would rebate 7.5 per cent of the investment management fees it collected over the 2017-18 financial year, with its chief executive Brett Himbury lambasting the high margins fund managers collect for “not a hugely capital-intensive business”.