The Grattan Institute, which was influential in the Financial System Inquiry (FSI) analysis that superannuation fees were too high, has sought to reinforce its position with a new research paper claiming the existing cost-cutting initiatives are not enough.
The research claims that Australians are being slugged $6 billion a year more than in justified in administration charges and investment fees.
The research report, by Jim Minifie, argues that administration fees are too high in both default and choice funds, therefore taking a toll on net return.
What is more it the Grattan Institute research claims there is little evidence that funds that charge higher fees provide better member services.
“There are too many accounts, too many funds, and too many of them incur high administrative costs,” the paper said “We pay $4 billion a year above what would be charged by lean funds.”
It said investment fees were also too high with many funds not delivering returns that justified their fees.
“Cutting fees to what high-performing, lean funds charge could save more than $2 billion a year,” it said.
The Grattan Institute analysis claimed that superannuation could be run for “much less than the $16 billion currently charged by large funds (self-managed super costs another $5 billion)”.
“The superannuation industry argues that its $21 billion costs are not excessive, and will fall over time. It opposes a tender for default accounts based on fees, claiming that it would reduce investment quality and net returns. But current initiatives to reduce costs are not enough,” it said.
The analysis said the Stronger Super reforms would only serve to cut default fees by about $1 billion and that even if the regulators pursued the Future of Financial Advice (FOFA) changes with zeal billions would be left on the table.
“Government must act to close accounts, merge funds and run a tender to select default products,” it said. “The tender would save account holders a further $1 billion a year, and create a benchmark to force other funds to lift their game.”
