Retail super fees static but still more expensive

Fees in retail superannuation funds continue to be almost double that of other sectors of the superannuation industry despite remaining static since 1999, according to a report commissioned by theInvestment and Financial Services Association(IFSA).

The report, written by consulting actuary Michael Rice and competition and law expert Ian McEwin, shows that fees in retail superannuation average 2.34 per cent of assets, effectively on par with the 2.33 per cent recorded by a similar study in 1999.

The report points out that in the intervening period fees have been affected by the GST - which has been estimated to have added 2.5 per cent to prices in the financial sector - compliance costs, and the shift to ‘dialling up’ of on-going fees to compensate for reductions in entry fees.

IFSA chief executive Lynn Ralph says the fact that there has only been a marginal increase in the fees despite other market forces acting shows that competition between managers is keeping fees down.

“It’s a reasonably positive result, especially in an environment which in theory should have experienced increasing costs, and so is another indication that even in the retail market, there is a high level of competition going on,” she says.

Ralph says the competition between managers for more market share and the effects of this on fee levels should continue for the next two years.

But the report has confirmed that retail superannuation remains more expensive than other sectors of the superannuation industry.

The report shows that the average fees for all superannuation assets have in fact fallen from 1.24 per cent in 1999 to 1.20 per cent in 2001.

In the case of industry funds, fees fell from 1.5 per cent in 1999 to 1.18 per cent today, while the cost of employer sponsored corporate master trusts fell from 1.64 per cent to 1.44 per cent.

Labor shadow minister for retirement incomes and savings Nick Sherry, while welcoming the report, immediately expressed concern at the cost of retail superannuation products.

He says fee data from the Australian Prudential Regulation Authority (APRA) should be made freely available so that comprehensive, independent and up to date data on fees in the superannuation industry can be maintained.

Ralph says that larger retail superannuation funds are most likely to cut their fees in an industry which is continuing to rationalise managers and administration costs.

“We’re seeing various players getting the bulk of the market share reducing their prices, but the smaller players grabbing at the fee margins are feeling the squeeze, so it’s clear that we will continue to see a shakeout of the market,” Ralph says.

“The report highlights the trends of economies of scale, and the increasing numbers of people using technology are driving fees down, despite on the other hand, costs of services like compliance increasing.”