Contrary to the approach adopted by the Financial System Inquiry (FSI), fees are not the most important factor to consider when comparing super funds, argues researcher SuperRatings.
SuperRatings' annual superannuation benchmarking study found fees have "little correlation with fund performance or retirement outcomes".
The finding is at odds with the findings of the Grattan Institute report, which found superannuation fees in Australia are unreasonably high by international standards.
David Murray, chair of the FSI, accepted the Grattan Institute findings in his final report, along with the think tank's recommendation that Australia consider a Chilean-style default fund tender process based on fees.
But SuperRatings chief executive Adam Gee said the proposed tender process is an "ill-conceived concept and any assessment based on only one criterion, is fraught with danger".
"Fees are, at best, only loosely correlated with value and any assessment of a superannuation fund should be made using a broad range of criteria, with 'net benefit' (investment returns less all implicit fees and taxes) being the only meaningful basis for comparison of fees and investment performance," Mr Gee said.
Somewhat surprisingly, SuperRatings' review of 162 funds found fees at times have an "almost inverse relationship to retirement incomes".
"Our analysis suggests there can clearly be an inverse relationship between fees and outcomes for members.
"This certainly supports our view that a tender process based purely on fees will not improve the retirement outcomes for most people," Mr Gee said.
While there have been reductions in the average MySuper fee for a $50,000 account balance (with the most significant falls in the retail sector) most of it has been down to a move away from active management, SuperRatings said.
"This has created a range of passively managed funds within the superannuation universe that should, in theory, provide similar returns, given they are passively managed and move in line with their index," SuperRatings said.
"On this basis, it would also be reasonable to assume that fees for these funds should also be similar, but there is an unjustifiable disparity of fee structures, ranging between 0.038 per cent of FUM per annum to 1.34 per cent per annum."
But fees associated with passive management of a balanced portfolio should be no more than 0.05 per cent to 0.1 per cent, said SuperRatings.
"We are concerned that substantial profits are being made by some funds charging excess investment fees for their passive investment products,"’ Mr Gee said.
"Whilst we believe there is a place for passive investment products, they must be appropriately priced to ensure that the net benefit to the member is reasonable and competitive."
A 20-year projection of different income levels confirms that lower earning retirees will be hit hardest by the ALPs proposed removal of fra...
The recent suggestions from the Grattan Institute have been labelled as offensive to working Australians by the nation’s largest super fun...
The major bank has argued that the success of retail super funds shouldn’t be measured by investment returns. ...