Superannuation funds scoop up record $18b in fee grab

Australians paid a record $18.6 billion in fees to their superannuation fund over the year to June, about four times the amount households pay in bank fees.

With retail funds charging about 2 per cent in fees, and industry funds about 1 per cent, this means the average Australian paid about $2300 in super fees in the 2013 financial year, according to a report by super fund research body Rainmaker.

Rainmaker's report has found there was no relationship between fees and investment returns, and warned as members' account balances get larger, the impact of fees becomes more significant.

Rainmaker's 2013 super fund fee survey, obtained exclusively by BusinessDay, estimates that costs in the compulsory super system equate to 1.23 per cent of super funds under management, equivalent to $18.6 billion a year.

While the 1.23 per cent figure is lower than the 1.31 per cent charged across the superannuation system in 2007, Rainmaker said the decline was not driven by falling fund prices but the drift from "higher-fee retail funds to lower-fee not-for-profit and self-managed super funds".

Superannuation had a bumper year 2013, with the average balanced fund returning 15.6 per cent, and the industry is expected to swell as the compulsory super guarantee rises to 12 per cent.

The $1.6 trillion sector has also had some political wins, with Labor recently pledging to quarantine super from changes for five years if it wins the election and the Coalition promising to do no harm during the next Parliament.

"Members are paying maximum fees at retirement when their balances are the highest they will ever be - which explains why so many super fund groups want to run retirement funds and also why so many members are tempted to jump across to set up and run their own self-managed super funds," said Rainmaker director of research Alex Dunnin.

Self-managed super funds were found to be the cheapest fund to run, but require larger balances.

The report said that a member joining the workforce at age 25 on an annual salary of $40,000 would be conservatively expected to accumulate a retirement nest egg of $500,000.

This is $100,000 more than the same person would be expected to accumulate under a high-fee fund, the report said, "reminding fund members that if they pay higher fees they need to either contribute more or earn higher returns to reclaim this opportunity cost ... otherwise their money will run out about a decade earlier".

The survey sample covered $919 million in funds under management and nearly 26 million accounts.

A recent Reserve Bank survey found that households paid $4.1 billion in bank fees in 2012, a fall of 0.3 per cent. But combined with $7.3 billion in bank fee income from businesses, banks collected $11.4 billion in bank fees that year, an increase of 4.3 per cent.

The cost of super tax concessions was in the spotlight earlier this year, with the industry disputing Treasury's estimates they cost $32 billion a year, rising to $45 billion in 2015.

A separate report commissioned by the super lobby group the Financial Services Council found overall industry fees, expressed as a percentage of assets, averaged 1.2 per cent in the 2011 financial year.