Retail super funds are soaking up half of all fees in the superannuation system despite holding only 29 per cent of retirement savings, according to new research carried out by Rainmaker for Industry Super Australia.

‘Retail’ includes the big four banks, who last year alone scooped up 28 per cent of all fees, totalling $8.7 billion.

Overall, the survey found that in 2016 Australians paid $31 billion in fees on $2.2 trillion of superannuation. That amount of fees is about the same as the cost to the government of superannuation tax concessions, and more than half the $45 billion spent on income support for the elderly.

Of that $31 billion in fees, the for-profit sector (which also includes self-managed super funds) ends up with $28 billion, or 91 per cent, Rainmaker found.

That’s because while the not-for-profit sector (including industry, public sector and corporate funds) charged a total of $12.7 billion in fees, $9.9 billion of that went to private sector wealth managers to provide insurance and fund management services. The not-for-profit sector kept only $2.8 billion.

A further breakdown of super costs shows how retail funds harvest more:

• Retail super funds, with 29 per cent of funds under management (FUM) and an estimated 45 per cent of members, received 50 per cent ($15 billion) of all fees
• Not-for-profit funds (industry, public sector and corporate) accounted for 42 per cent of FUM, 45 per cent of members and collected 42 per cent (roughly $13 billion) of fees
• SMSFs with 30 per cent of FUM and 10 per cent of members received 7 per cent of all fees

Within the for-profit sector there is further inequality. Rainmaker estimates that Australia’s five major banking groups and AMP receive 40 per cent of total super fees, or $12.3 billion, while the big four banks alone account for $8.7 billion in fees.

David Whiteley, CEO of Industry Super Australia, told The New Daily that “the banks have been getting significant funds from superannuation yet they have been underperforming the not-for-profit funds”.

“The government should be evaluating whether they think its appropriate for the banks to be generating nearly $9 billion a year from fees on super.

“The government and regulator need to find out if the bank-owned super funds are eroding workers’ super savings by generating profits for the parent bank.”

Alex Dunnin, research director at Rainmaker, said there had been some pressure on for-profit funds to reduce costs in recent years but they still have high costs. “There’s nothing necessarily wrong with being in high-fee products but you need to make sure it’s worth it.”

Source: Rainmaker

As the above chart shows, retail funds have significantly underperformed not-for-profit funds over the last 10 years.

“The bank-owned super funds delivered returns of 2 per cent less per annum when compared to industry super funds over 10 years. For an average income earner, this under-performance, if continued, could cost $200,000 in retirement savings over their lifetime,” Mr Whiteley said in a statement.

Mr Dunnin said the research showed retail fund members spend about $5.4 billion on advisors because much of their business is advisor driven. Advisory fees include entry advice fees, grandfathered ongoing trail commissions for pre 2013 business and fee for service portfolio structure and investment advice fees.

Industry funds do provide some advice but its total is very small and not captured by the research, he said.

Total fees paid by superannuation fund members across Australia decreased marginally during 2015-16 from 1.19 per cent to 1.18 per cent.

The Financial Services Council declined a request for comment.

*The New Daily is owned by a group of industry super funds