Fees cost super investors billions

Stuart Washington

March 5, 2010

Comments 6

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Exorbitant fees by super funds

New research estimates that exorbitant fees charged by retail super funds has cost Australians $40 billion over the past 14 years.

High fees have cost superannuation investors more than $40 billion over the past 14 years, according to research that claims there has been a market failure in Australian superannuation.

The Industry Super Network argues that high embedded fees, including commissions to financial planners in ''for-profit'' superannuation funds, are the main cause for the poor performance of for-profit retail funds when compared with non-profit industry funds.

The research also says that more than 4 million superannuation investors are paying commissions to financial planners without receiving any advice.

Research by ISN, the umbrella organisation for industry super funds, cites Australian Prudential Regulation Authority figures showing a 3.6 per cent annual return for retail funds and a 5.5 per cent annual return for industry funds over the past 13 years.

The in-house research argues that if all retail fund investors had received the industry fund investors' returns since 1996, they would have been better off to the tune of $49 billion, giving an average worker $80,000 extra over their working life.

The chief executive of ISN, David Whiteley, said there had been market failure of superannuation in three areas because for-profit funds underperformed non-profit funds but there had been no big structural changes in the industry.

6 comments

Startling!? I don't think so.

If you had the choice would you invest in any other product where:
1. you are given no choice as to exactly what these funds invest in;
2. they refuse to tell you exactly what equities they invest in (mostly);
3. there is absolutely no incentive for good performance and absolutely no recourse for poor performance - fund managers just keey collecting those bonuses.
4. rolling your money out of some of these funds can prove very difficult ....

Is it any wonder that ONE THIRD of all Aussie super is now in the hands of the Self Managed Super Sector?

The best thing my husband and I have every done was start our own Super fund and buy an investment property.

We are pretty average financially but now at least I feel our super is under control and we're no longer subject to the stupid financial decisions of lazy fund managers!

Commenter

Kerry

Location

Phillip Island

Date and time

March 05, 2010, 9:23AM
How sad it is when money invested in the bank has a better return than any super fund. Super funds have already outlived their use by date. I have been shown super fund statements where the fees and charges or more than the interest earned. What a ripoff!!!

Commenter

one and one makes!!

Location

melbourne

Date and time

March 05, 2010, 9:36AM
An article citing a biased report from an organisation with a vested interest with no counter argument.

Questions for the journalist to ask industry funds:

1. Your comparison of returns with retail super funds by necessity has to compare your own limited one-size-fits-all investment options with a multi-manager balanced option in a retail super fund. Is this really an accurate comparison, given that under a retail fund members have a far greater investment choice and thus their own individual portfolios will differ substantially from the average 'balanced option'. By way of illustration, why hasn't an industry fund been able to match my own super portfolio through a retail master trust with a financial planner which returned 85% net of fees between March 2009 and January 2010?
2. Why is it that industry fund investment options as a whole have a substantial allocation in "alternative investments"? What are alternative investments? Unlisted property, infrastructure assets, private equity - does the allocation in these illiquid assets with infrequent valuations have a bearing on members' short-term and long-term returns? More to the point, why do industry funds see fit to invest in this asset class, and in some cases comprises the majority of the portfolio (see MTAA) whereas most retail funds wouldn't touch it?

Compare the pair indeed.

Commenter

Eric

Location

Adelaide

Date and time

March 05, 2010, 9:53AM
I think it's important to note that this is, for the most part, PR from Industry Super Network, who represent a set on non-profit 'Industry' funds such as HostPlus and CBUS. I would say that most consumers wouldn't know the difference between a 'retail' fund and 'industry' fund.

The research was not conducted by the 'superannuation industry's peak body, but by the body representing a particular coalition of funds, whose best interest it is in to disparage the performance of 'retail' superannuation funds. It would be similar to Coles releasing 'research' that cited Woolworths having higher prices.

*I am a member of an industry super fund

Commenter

Ginger

Date and time

March 05, 2010, 9:52AM
My partner and I have both been working for 12 years in similar professional occupations (started off in the same company in the same job). I changed jobs a couple of times since and therefore, super funds (non-industry), and he remained in the same company in various roles.

His super is exactly double the value of mine.

The difference? He is not only in an industry super fund but a defined-benefit fund. If you have one of these you're a lucky person indeed. In fact, my partner and others I know in such funds are reluctant to (and may never) leave their jobs and their super funds, knowing that the superannuation landscape out there is just so much worse.

Live and learn. I'm doing my best to recoup losses of past years (sharemarket losses and fees) and am not contributing anything more than the employer 9% to super. I prefer to save and to be able to control and access my money outside of super (mainly to pay off the house), no matter how much I am told that it is more tax-effective to salary sacrifice to super.

Commenter

Is it worth it?

Location

Melbourne

Date and time

March 05, 2010, 9:44AM
To me, this has always been fraud - deception at best. In other circumstance it would be clearly illegal and heavy charges would be laid.
It was the Howard governments stated intention that working people should not only pay tax, they should also support themselves in retirement, with adaptive legislation determining when superannuation (their own money) could be accessed.

Forced 'Investors' were delivered to this deregulated and predatory industry BY the government, and the absence of any valid protection was palmed off as 'economic rationalism' & 'free market' theory. In short, we were forced into the open as fodder for a lucrative free-ranging investment industry.

Qui bono? - who benefits?

This was always going to be a three-card-trick, and I still can't believe that Australians not only LET it happen, they kept returning the government who did it.

I am still deeply disturbed by a 'silence of the lambs' type mass-hypnosis of so many people who were being victimised.

How on earth is this not - wilful, culpable and negligent theft? Years of people's life and labour were allowed to be stolen. They were cheated with the complicity of the worst Liberal contempt we have ever experienced.

All I can say is that this is a most graphic example of what is legal, does not necessarily equal what is ethical or right.

I fear that voters who don't think hard enough about their vote, can allow this to happen again.

Commenter

81dvl

Location

Vic

Date and time

March 05, 2010, 10:21AM