Retail, or for-profit, superannuation funds are costing members as much as 274 per cent more in fees on accounts than not-for-profit funds, new research by SuperRatings has revealed.
The research found that for a fund with a balance of $50,000 in a secure option, which has 20 per cent or less exposure to growth assets, a member of a not-for-profit fund would pay annual fees of $296.10.
A member of a retail fund with the same balance would pay annual fees of $755 – a difference of $458.90 a year.
For a larger balance of $250,000, a retail fund member would pay $3255 in annual fees, while a not-for-profit member would pay $2837.50 – a difference of $417.50.
The situation is even worse for a fund wholly invested in cash. A $50,000 balance in a cash-only retail fund would cost a member 283 per cent, or $370.27, more a year than for a comparable not-for-profit.
What being balanced looks like
For the popular “balanced” option, in which most Australians have their money, a member with a $50,000 balance would pay $569.10 in fees to a not-for-profit, compared with $820 in a retail fund – a difference of $250.90 a year.
According to the Australian Securities and Investments Commission website a fee differential of that amount could mean paying $36,000 extra in fees over 37 years and leave someone aged 30 with a $50,000 balance with $271,000 in super.
A low-fee fund would have left a person earning $80,000 with $307,000 on retirement at 67.
On a balance of $250,000 a not-for-profit member would pay $2603 compared with $3594.72 for a retail fund member – a difference of $991.72.
On higher-growth options, the difference between the costs of retail and not-for-profit funds shrinks, but remains between 113 per cent and 159 per cent higher for retail members.
Eva Scheerlinck, CEO of the Australian Institute of Superannuation Trustees, a sponsor of the research, said the report highlighted the need for regulators to provide tools that made it easy for members to compare fees and charges and make informed decisions about which super products were best for them.
“Currently, it is almost impossible for members of ‘choice’ funds to compare the fees and charges of their super fund. In the 21st century, this shouldn’t be that hard,” she said.
“Many members are paying almost double the fees for less returns on their retirement savings. It’s hard to see how the trustees of these funds can justify this in the post-Royal Commission environment,” she said.
“People in low performing funds will be losing out on their superannuation and they won’t even know it. This is unacceptable,” Ms Scheerlinck said.
The report’s authors research group, SuperRatings, found the cost disparities were much greater in the ‘choice’ category where members choose a particular fund or option rather than automatically being put into the ‘default’ or My Super option by their employer.
Kirby Rappell, SuperRatings CEO, said regulatory changes had forced retail funds to offer a low-cost My Super in recent years, and that was significantly narrowing the differences between not-for-profit and retail funds in that category.
As a result, MySuper options for the two fund types range from level pegging to 7 per cent in favour of not-for-profits.
But Mr Rappell said that retail funds had only 27.05 per cent of their assets in the MySuper category while the not-for-profit sector had 54.3 per cent of assets in that category.
“A lot of retail funds use low-cost, passive investment strategies in the default sector. That means their costs can be lower but their returns are also often lower,” Mr Rappell said.
SuperRatings found that over the three years to December 31, 2018, not-for-profit super overall grew at an annual rate of 6.47 per cent while retail funds grew at 4.94 per cent.
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