Home' Superfunds : Superfunds September 2014 Contents Superfunds September 2014
much around the middle of the pack, despite a
number of factors that drive up costs in Australia.
Legislative and taxation arrangements vary
greatly between countries, and these can have a
significant impact on operating costs. Australia’s
taxation treatment of superannuation is relatively
complicated, compared to many other countries
where pension funds generally are not taxed on
employer contributions or investment earnings.
As well, the level of prudential supervision with
associated licensing and prudential controls and
documentation is relatively high in Australia.
Australia has very extensive insurance
arrangements for fund members, ranging from
events covered from death to total and permanent
disability to temporary incapacity. These involve
significant underwriting and claim processing costs.
The costs of insurance claims processing alone
are around 10 per cent of administration costs
for funds, contributing around three to four basis
points on average to the aggregate costs of
Processing of contributions adds another three
to four basis points to costs given that funds
in Australia have to process contributions from
multiple employers, with some funds handling
contributions from hundreds of thousands of
employers. Going forward, SuperStream will
substantially reduce those costs, but that is yet to
be reflected in the cost and fee structures
In Australia, a significant proportion of the
costs of the provision of financial advice are paid
through superannuation fund administration and
other costs. This can amount to up to five basis
points on average. In countries where most assets
are in defined benefit funds, there may be little
or no financial advice provided to fund members
given that the benefit design is fixed and there
are few, if any, options available to fund members
to alter their contributions or the investment mix
backing their benefit.
The costs of insurance administration,
contribution processing and the provision of
advice alone total in excess of 10 basis points of
assets on average.
It also will come as no surprise to those
working in the superannuation industry that
there actually are numerous instances of fee-
based competition. As well, going forward, there
will be even more fee competition flowing from
a number of reforms, including decoupling the
payment for financial advice from the distribution
of financial products.
Fee-based competition has always been strong
in the tender processes for default funds that have
been undertaken by large employers. This has
resulted in both retail and industry funds tailoring
their offerings, including through reductions of
fees from the standard rate, in order to obtain the
business of an employer.
Industry funds have also competed for choice
members through television and other advertising
where the primary thrust is on the comparative
fees of their offerings.
Rating agencies have also played a role in
facilitating price competition by providing
information and comparison tools for consumers
on their websites.
Retail super funds have responded to such
competition and to the changed remuneration
arrangements for financial planners by developing
their own directly distributed superannuation
products, which typically have fees of less than
100 basis points, considerably below the up
to 300 basis points that some personal retail
products charged in the past.
The MySuper application processes give
attention to fees, amongst other factors. The
great bulk of MySuper products have fees around
or under 100 basis points.
Public sector funds, especially those that are
defined benefit, may not have direct competitors
but their fees are paid in effect by the employer.
These funds have also demonstrated their cost
competiveness to their employer sponsor through
international benchmarking activities.
There no doubt is scope for more competition,
lower costs and fees going forward, but it is not
correct to characterise the Australian system as
being ‘high fee’ without much competition when
compared to other countries.
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