The Australian Securities and Investments Commission is conducting an investigation into why retail superannuation funds were so slow in moving high-fee accounts into low-fee MySuper products under the reforms introduced from 2013.
The tardiness of the move cost workers between $800 million and $1.8 billion over four years, according to research done by Rainmaker for Industry Super Australia late in 2016. The extra fees were generated by retail funds leaving members’ accounts parked in higher-cost legacy default products longer than necessary.
Rainmaker estimated that over 20 years of growth in a fund, the extra costs of slow transfer to MySuper could cost fund members between $2.1 billion and $6.1 billion.
An ASIC spokesman confirmed to The New Daily that the issue was being investigated but did not provide further details.
MySuper products were mandated to ensure that all default superannuation, where employees don’t make a fund choice, is held in low-cost accounts. All default funds were due to be moved into MySuper by July 1 2017 and superannuation providers were required to start such options if they didn’t already provide them.
Rainmaker research found the average retail MySuper fund had fees 30 per cent cheaper than regular retail super funds and “so the sooner members transition across to these lower cost products the sooner they start saving fees”.
But the retail funds were slow to move on making that transition.
What that chart shows is that while industry and corporate funds had moved most of their default funds to MySuper options by July 2016, most of the retail funds had not. At that date not-for-profit funds had moved almost 100 per cent of their default assets into MySuper but for retail funds it was only 43 per cent.
They will have had to complete the transfer to comply with the new laws by this July but APRA figures on the size of MySuper funds under management are not yet available.
The figure for July 2016 was $514 billion. It was expected to be $633 billion when the the transfers are completed.
Analysts have identified the pain suffered by the banks with the move to MySuper in their latest profit round. UBS analyst John Coghill noted: “As we observed in the six months to March 2017, revenue margin squeeze persisted over the September 2017 period at a surprisingly high level.”
UBS estimates of the margins on the big banks declined from 63.5 basis points in the first half of the 2017 reporting year to 61.8 basis points in the second half. “We estimate 11-13 per cent squeeze (on profit margins on revenue) for the three banks that reported for Sept,” UBS found.
Overall for the banks and major wealth managers the decline was 8.5 per cent year on year. “MySuper and mix change were highlighted as the main drivers,” Mr Coghill said.
Industry Super public affairs director Matt Linden welcomed ASIC’s preparedness to investigate why the for-profit funds had been slow in transferring funds into MySuper options.
“This fee gouge is another grave episode in a long series of shocking bank behaviour,” said Mr Linden.
“In delaying the transfer of legacy super accounts, the banks potentially were again sneakily boosting their profits at the expense of the retirement incomes of ordinary Australians.
“The not-for-profit industry funds, on the other hand, did the right thing, swiftly moving their members across to low fee products.”
Industry default fund costs did not change with the introduction of MySuper, averaging 0.99 per cent a year, Rainmaker found. However retail fund average cots fell from 1.58 per cent to 1.26 per cent, it found.
*The New Daily is owned by industry super funds