Super admin fees may rise 40pc

The Australian 12:00am March 26, 2019

Michael Roddan

EXCLUSIVE  Savers in union-and-employer-backed industry superannuation funds could be hit with administration flat fee increases of 40 per cent a year following government reforms stopping the use of low-balance accounts and young worker nest eggs to cross-subsidise other members.

An analysis of official statistics and super fund product disclosure statements reveals that without implementing cost-cutting programs to bring down administration expenses, the average fee across the 20 largest industry super funds would need to rise from $75 to $112 per member to make up for the forgone fee revenue, which has been estimated at $225 million across these funds each year.

The Morrison government last month secured passage of laws that will impose a 3 per cent cap from July on administration fees on low-balance super accounts with less than $6000 in savings, which is expected to save Australians $570m in the first year.

The reforms will also claw back lost and forgotten super accounts through the Australian Taxation Office to reunite the savings with their members.

Several super funds have extremely high rates of inactive accounts, which allow the funds to subsidise their active members.

According to The Australian’s analysis, the largest fee increases will occur in funds that gain the most members through enterprise bargaining agreements and the default fund system, which has resulted in a few funds amassing a significant proportion of low-balance and inactive accounts.

Without measures to offset the forgone fees, Hostplus, which looks after the savings of hospitality and tourism workers, could be on the hook to hike its admin fee by almost 70 per cent — from $78 to $131 — to make up the difference. REST Super, which looks after retail workers, would need to lift fees by 44 per cent — from $68 to $97 — to offset the lost fee revenue. REST is examining whether any cost savings could be made through its investment managers or its operations before it has to hike its fees.

The country’s largest fund, the $140 billion AustralianSuper, earlier this year lifted its administration fees for the first time in a decade in preparation for the government reforms.

AustralianSuper fees rose from $78 to $117 — an increase of 50 per cent — which would bring in an extra $80m in revenue. It offset some of the lost fee revenue and helped to upgrade the fund’s IT systems.

Industry Super Australia chief Bernie Dean said the sector knew how important it was to keep fees as low as possible and that the funds would “strive to keep any fee increases to a minimum” while maximising member returns.

“Most funds affected by the changes will need to reapportion some fixed costs across a smaller membership base,” Mr Dean told The Australian.

“Any adjustments to capped dollar fees will likely have an insignificant impact on net returns received by members.”

While retail superannuation funds run by the banking and wealth management sector are also subject to the fees, companies can source shareholder capital to buttress the loss of fee revenue, which is already significantly higher than in the not-for-profit industry fund sector.

The Productivity Commission has found fee gouging in the retail fund sector has worse outcomes for savers, due to related party transactions and high asset-based fees in the for-profit sector, which take a slice of total member savings each year.

REST Super said it was “currently reviewing different options to minimise the potential impact” of the Protecting Your Super reforms on the fund and its members. “No decisions have been made by the trustee at this stage. Rest always prioritises keeping fees as low as possible,” a REST spokesman said.

Without cost-cutting programs, Care Super is estimated to need to increase its fees from $78 to $100 to make up the difference — an increase of almost 30 per cent. MTAA fees would rise from $83 to $104 a year, while NGS Super admin fees would need to rise from $65 to $78.

The super system is poised to undergo radical reform after the reforms consolidate lost and forgotten member accounts and fee-gouging low-balance accounts take effect.

Meanwhile, clearer fee disclosure rules soon to be enacted by the corporate regulator, and tougher performance hurdles to be implemented by the Australian Prudential Regulation Authority, will push many of the 200 funds in the system to merge.

As revealed by The Australian, large super funds such as AustralianSuper and Statewide are considering enveloping smaller super funds that have business models that are under pressure in the wake of the reforms.

Macquarie analysts have tipped that the number of superannuation funds will likely halve and the larger cashed-up “mega” funds are likely to become the driving force of corporate activity.