The big four banks have been accused in a new report of ripping off retirees with exorbitant superannuation fees.
Retail funds got a drubbing in the latest Fat Cats report released by investment advice firm Stockspot on Wednesday.
The report examined the after-fee performance of 3820 Australian funds since 2011. Industry funds were the clear winners – and funds offered by the big banks were named among the six worst performers.
“There is a serious message at the heart of this report. Too many Australians are unaware of the devastating impact high fees have on their long term savings,” Stockspot founder Chris Brycki wrote.
“This report shows that the biggest impact to consumers comes from funds with high-compounding fees. Given that superannuation is the single most important savings pot you will have in your life, surely this is an issue that needs urgent attention from government?”
The average fee charged by retail super funds was 1.71 per cent. The average annual return for these funds was 9.82 per cent (better than industry funds), but this dropped to 8.11 per cent (worse than industry funds) once fees were factored in, the report found.
In contrast, the average return on industry super funds was 8.93 per cent, but these funds had much lower fees (0.71 on average). Because of this, their average after-fee return was better: 8.22 vs 8.11 per cent.
So if the estimates were correct, retail fund managers charge higher fees that erode their better results.
The big four banks and AMP controlled the majority of the 638 ‘fat cat’ funds identified by Stockspot, which reaped an estimated $777 million in fees last year.
The report defined a ‘fat cat’ fund as one that yielded results for its customers, after fees were included, that were at least 10 per cent worse than comparable funds over one, three and five years.
A 30-year-old in one of these ‘fat cat’ funds could lose nearly a quarter (24 per cent) of their lifetime retirement savings because of high fees, the report estimated.
But not all good news for industry funds
Industry super funds haven’t got it all their own way this week. They have been accused, along with retail funds, of encouraging fossil fuel exploration.
Market Forces, an environmental finance activist, released a report on Thursday criticising large super funds – including AustralianSuper, HESTA, CareSuper and REST – for not using their bloc of shareholder votes to oppose executive remuneration packages at Australian fossil fuel companies linked to the expansion of new oil, gas and coal reserves.
“There can be no more glaring example of the failure of superannuation funds to effectively engage with companies on climate change than their continued blind support for executive remuneration packages which expressly incentivise the expansion of fossil fuel reserves,” Market Forces analyst Daniel Gocher said in a statement.
The Australian Council of Superannuation Investors, which represents retail and industry funds, dismissed the report as “just untrue”.
“Our members have done significant work over recent years on greening Australia’s property sector and on ensuring infrastructure assets meet appropriate environmental, social and governance standards. In addition, our members are investors in green climate bonds and renewable energy,” ACSI chief executive Louise Davidson told The New Daily.
“ACSI is engaging with resources companies on behalf of its members on the transition to a low carbon economy, and we’ve seen some positive responses from listed companies on and around increased disclosure about their climate change strategies. There is more work to be done, and this continues to be an area of strong focus for ACSI.”
* The New Daily is owned by industry super funds