Take the cream from super fat cats

Peter Costello, we agree with you about excessive superannuation fees and charges.

Peter Costello, we agree with you about excessive superannuation fees and charges.

PETER Costello, we agree with you about excessive superannuation fees and charges. We share your anguish about how such expenses erode investors' superannuation holdings, and agree there should be closer scrutiny of the actual returns on funds invested. There are streams of administration charges, insurance premiums, fees for withdrawing funds or for switching investment strategies, plus fees and performance bonuses paid to external fund managers. The investment fees alone account for about half of the estimated $16 billion a year paid in super fees and charges.

These expenses can run to thousands of dollars a year for moderate accounts. And when investment returns are insipid, as they have been since 2008, investors might be forgiven for thinking their hard-earned sums are paying for someone else's retirement. Still, you undermine your argument, Mr Costello, by implying industry-based funds are the worst perpetrators of excess in this area. Nice try. A swipe at unions on the way through is probably to be expected, but the focus really should be on the fat cats who have feasted on the superannuation system for more than two decades.

On the whole, these are white-collared professionals, not union members, and they operate in a competitive free market. They are accountants and auditors, actuaries, lawyers, insurance managers, fund managers and more.

While some of the government's current super reforms will eventually put downwards pressure on super funds' administration fees, some real muscle should be applied by trustees to the fees paid to external fund managers. No one is suggesting their fees be regulated, but there remains little incentive for them to cut their fees. The problem is that fund managers are paid a percentage of the value of funds under management, regardless of whether they achieve a positive return. A poor return might lose them a mandate and outperformance generates a bonus, but mere level-pegging with the rest of the industry still pays generously.

Australia has about $1.35 trillion of super funds. As the compulsory contribution rises to 12 per cent, that figure will swell - all the more reason to insist on transparency and accountability from those who administer and manage funds. Investors should get far more information about how much goes to trustees, fund managers and others, and more about returns. These long-term investments are essential for supporting our ageing population in future decades. They should not be squandered by a privileged few in the financial sector.

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