Further rationalisation of the Australian superannuation industry could deliver scale benefits and lower fees to members, a new study has found.
Size and scale are critical to achieving lower fees in any superannuation system, according to a joint study by Deloitte Actuaries and Consultants and the Investment and Financial Services Association (IFSA).
The global survey found Australian super funds charge higher costs to members due to scale disadvantages, as a result of a smaller population and a more aggressive investment approach than other countries.
“Increased disclosure, cost reduction and more consolidation among players who maintain strong competition will deliver greater benefits to consumers,” IFSA chief executive John Brodgen said.
Deloitte partner Michael Monaghan said consolidation is hindered only by competition and market forces, although the consolidation process has been accelerated by the global financial crisis.
Monaghan also said fewer players will be managing more money in the next five to ten years.
Despite being competitive in administration and investment fees, higher fees from Australia’s largest superannuation funds have resulted because of higher costs.
The study found these costs could be eliminated or lowered with a rationalisation in the number of funds in Australia and through improvements in automation to eliminate duplication.
“There are areas in the corporate, retail and industry fund sectors where further rationalisation can provide further benefits,” Brogden said.
“Deloitte’s study shows us that there is still plenty of room for efficiency gains in Australia by adopting improvements in automation and the elimination of duplicate accounts in our system,” he said.
Deloitte and IFSA said the study will assist the Cooper review through pointing out areas for change, such as a focus on driving costs down, a need for increased automation and legislation that leads to consistency and better outcomes in consumer choices.
