Despite the amazing growth of scale in Australia's superannuation industry, fees have grown instead of dropping in recent years and members should demand transparency from funds, a financial adviser has said.
Custom Wealth Solutions chief analyst Chris Appleyard said "typically, when a company increases its production or its supply of services, it achieves an economy of scale and can reduce the costs of doing business".
"Superannuation funds do not seem to have passed on these savings to fund members," Appleyard said.
"Although nobody likes to pay superannuation management fees, one may think they are just the price of doing business; a necessary evil one cannot avoid. Many super managers count on that attitude and are overcharging super members."
The local superannuation market has the fastest-growing pension sector in the world, having grown 17 per cent in the past 10 years. The $1.3-trillion business was more than triple the United States retirement market.
"However, despite this amazing growth in productivity, members and assets invested, super fees have grown instead of dropped in recent years. Consumers may think that paying fees is unavoidable if they want the benefits of a managed superannuation fund. They may also conclude that 1 per cent here or there won't make much of a difference in the long run. Unfortunately, they would be completely wrong," Appleyard said.
Not all super funds charged the same management fees, with the average charge being 1.3 per cent, according to super industry researcher SuperRatings.
"However, some funds will charge up to 4 per cent of the fund's assets in fees," Appleyard said.
"That's a huge difference. When it comes to super funds, just half of a point difference can mean $50,000 less at retirement."
The Australian Taxation Office's self-managed superannuation fund (SMSF) overview for 2009/10 said the estimated average operating expense ratio of SMSFs fell from 0.69 per cent to 0.59 per cent and 0.54 per cent over the years ended 30 June 2008, 2009 and 2010 respectively.
Most SMSFs had an estimated operating expense ratio of less than 1 per cent (64.7 per cent of SMSFs in 2010). The highest proportion (almost 38 per cent in 2010) had an estimated operating expense ratio of 0.25 per cent or less.
"Nevertheless, self-managed super funds do require a substantial investment in time and resources that could make them prohibitively expensive for members with small super fund balances," Appleyard said.
Often managers would charge fees for services that clients either did not need or did not know about. "It is crucial that super investors understand what services they are receiving and what it costs them or else you can end up paying for services you are not aware of and don't use," Appleyard said.
People should consider the cost and availability of insurance, the fees super funds charged, and their expected retirement age before choosing a super fund. For some people, a competitive industry or government super fund was a good fit, while others benefited from more flexible instruments, such as master trusts and SMSFs.
