Industry Funds

25 October 2012

By online business reporter Michael Janda

Industry super funds are pushing for greater disclosure on where $20 billion in superannuation fees are going.

A report commissioned by the Industry Super Network has found fund members are paying around $20.1 billion in fees each year, with $6.2 billion of that money going to fund managers.

The ISN’s chief executive David Whiteley says that means fund managers and other corporate providers of superannuation services should be subject to the same disclosure requirements as the super funds themselves.

“Where $6 billion is being paid to fund managers, it’s appropriate that members be able to find out more information about these fund managers, for example who is on the board of these organisations, what are the fees being paid to the directors of these funds management businesses, and what’s the remuneration of some of the key executives there,” he said.

The largest proportion of fees went to fund administration, which cost members a total of $7.8 billion, while insurance cost a total of $2.7 billion across the sector.

Retail, or for-profit, super funds also paid out an estimated $2.8 billion to financial advisers.

 Mr Whiteley says not-for-profit funds – such as industry, public sector and corporate funds – have 38 per cent of funds under management and 46 per cent of members, but only collect 34 per cent of fees, with much of that money paid out to third parties such as fund managers.

“This report shows that only 10 per cent of the total fees are going to the not-for-profit sector, and included in that 10 per cent is all the administration services,” he added.

However, the report shows self managed super funds (SMSFs) had the lowest fees as a proportion of funds under management, holding 33 per cent of the nation’s total super balance, but only collecting 10 per cent of the total fees.

With only 8 per cent of people holding their super in a self-managed fund, Mr Whiteley says this sector’s average fee levels are pulled down by a relatively small number of wealthy individuals who have relatively small fixed costs on large balances.

“Some members within self-managed super funds have extraordinarily high account balances, and sometimes the costs of running these funds can in some ways be fixed,” he explained.

The report prepared by research firm Rainmaker finds that, on average, annual fees suck up around 1.26 per cent of the nation’s superannuation balance, down marginally from 1.32 per cent in 2008.

Combined with the cost to the Federal Government of tax subsidies associated with superannuation, the report finds super is costing the nation around $47 billion a year – that is about the same amount as the total cost of age pensions superannuation is intended to save.

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