The fees reported by your superannuation fund could rise from Monday as the Australian Securities and Investments Commission’s new reporting requirements come into force.
But research from consultancy firm Rice Warner found that changing your fund as a result often cuts returns and raises costs.
It found that across the super system, those who changed funds found themselves paying a net $137 million extra in fees and often switched into funds with lower returns.
Under the new reporting regime for super funds, known as RG97, industry and public sector funds are likely to report an increase in fees of around 0.2 percentage points or around 30 per cent.
That is because they are now required to report their share of the costs of group investments in areas like infrastructure and private equity whereas until now they have been factored into return reports.
AustralianSuper has put its investment fees up 17 basis points to 74 basis points. Building industry fund Cbus has raised its fees 20 basis points.
Bill Watson, CEO of First Super, told The New Daily “we have been repricing since October 1 last year and have put our fees up 30 basis points to about $560 a year on a $50,000 fund”.
That works out at around 1.1 per cent.
“But the important thing is returns and we’ve had a stellar year returning 11.5 per cent on our MySuper offer and 13.61 per cent on growth funds,” he said.
The fee rises had not reduced inflows into the fund, he said.
Moving funds out of the industry sector could result in members being hit with a significant fee increase. Rice Warner’s research, done for Industry Super Australia, found that of the gross $170 million extra in fees born by fund switchers in the year to June 2015, 92 per cent – or $156.4 million – emanated from retail funds.
For those switching to or in the not-for-profit sector, which includes industry, public sector and corporate funds funds, the aggregate increase in fees was $13 million.
Of those moving into the industry fund sector, 21 per cent paid lower fees while only 9 per cent of those moving into retail funds paid lower fees. The average decrease in industry funds was $110 compared to $55 for retail funds.
For members switching from industry to retail funds, only 7 per cent paid lower fees at the new fund. Conversely, 78 per cent of members switching from retail to industry funds paid lower fees.
Of those switching within retail funds, 59 per cent paid more fees, with an average rise of $263. In the industry funds sector 50 per cent of those switching had higher fees but the average rise was lower at $83.
Switching is also likely to bring lower returns overall as 56 per cent of switchers went into less well-performing funds.
The aggregated impact of shifting was a decrease in fund values of $284 million annually.
Of that decline, 87 per cent was accounted for by lower returns in retail funds and 80 per cent of members who switched into the retail sector saw lower returns as a result.
While the introduction of RG97 has raised the reported costs of industry funds, AustralianSuper group executive Paul Schroder said members “must remember that the number this year is not an apples-for-apples comparison and reflects a different number based on new rules”.
Retail funds are not expected to increase reported costs under RG97 as the platforms they invest through were carved out of the new regulations.
They must report the costs of platforms but not through the product disclosure statements clients are given first up on signing onto a fund.
*The New Daily is owned by industry super funds