SuperRatings calls for tougher stance on ERFs

SuperRatings has used the results of its latest eligible retirement fund (ERF) review to call for a tougher regulatory stance on fees and disclosure documentation relating to ERFs.

This year’s review, which received input from 11 of the 15 ERFs in the Australian market, found that over $100 million in fees was deducted from lost and inactive accounts during the 2005-06 financial year.

It also found that asset growth and member flows in ERFs have slowed since last year, the former moving from 13.3 per cent to 9.5 per cent and the latter from 11.5 per cent to 3.8 per cent, reflecting the continued strong performance of equivalent superannuation funds and a gradual increase in members’ awareness of superannuation.

SuperRatings’ suggested regulatory changes include the setting of a maximum fee scale for aggregated management costs, a requirement that ERFs be operated under their own trust deed rather than that of another trust and that superannuation trustees controlling ERFs review them at least tri-annually.

Jeff Bresnahan, SuperRatings managing director, believes many of the commercially operated ERFs have higher than reasonable levels of profitablility for trustee boards, and largely “fly under the radar” of the Australian Prudential Regulation Authority (APRA).

“These levels of fees are absolutely excessive given the amount of work involved in managing these accounts,” Bresnahan said.

“Why is it that some ERFs can manage member accounts for just under $10 per annum whilst others effectively take over $75 per account?”

While the ERF structure was established around 10 years ago as a temporary measure for members to keep lost and inactive superannuation money within the superannuation environment, “[they] have turned into a highly profitable part of the market,” Bresnahan said.

According to Bresnahan, SuperRatings met with APRA about the findings of the first ERF review it conducted last year, and was told the regulator was auditing the sector and continues to do so.

“They are legal, but that doesn’t make them moral,” he said, also suggesting there is a commercial reason for ERF trustees not wanting members to be reunited with their lost funds.