By Dan Blackman
Two of the Federal government’s newest superannuation funds have been flagged for high fees according to the first MySuper ‘heatmap’ released last month by the Australian Prudential Regulatory Authority (APRA).
The Public Sector Superannuation Accumulation Plan (PSSap) and the Australian Defence Force Superannuation Scheme (ADF Super) had disclosed fees of 1.2% and 1.26% respectively, less than 0.2% from the red zone, for MySuper accounts with balances of $50,000.
The schemes’ trustee, the Commonwealth Superannuation Corporation (CSC), released a statement yesterday in response to a request from Super Info about the fees.
The CSC admits that, according to the heatmap, the total fees for PSSap and ADF Super were “slightly higher than peers”.
“We support APRA’s aim to provide transparent assessment of Australian superannuation funds in the sustainable delivery of quality customer outcomes,” the statement reads.
“Our primary investment objective is to maximise long-term net real returns for our customers [and we] always endeavour to eliminate unnecessary costs,” it says.
“We invest in high-quality assets that increase the probability of robust growth and downside protection. While the costs associated with this can be higher, the cost per unit of value created is very competitive and a benefit to our customers, as endorsed by an independent Harvard Business School review of our portfolio in 2016.”
The CSC points to investment performance fees as a contributing factor to the higher fees and states that it “has carefully and deliberately designed fee agreements with CSC’s fund managers to ensure they align with our customers’ interests so that profits are shared, to a maximum limit, but so are the losses”.
“The practical result of this is that our fees vary through time, and therefore so does our published Indirect Cost Ratio (ICR)…”
“When there are no excess returns for our customers, our external fund managers do not achieve their performance fees either.”
According to APRA’s heatmap, 27 single strategy MySuper funds (including ADF Super) had higher fees than the PSSap for accounts with $50,000. Of these, only three had net assets over $10 billion.
The PSSap had reported net assets of approximately $14.5 billion for the same period.
Mr Michael Miller, a Certified Financial Planner from Canberra, believed that competition and transparency had continued to increase, and this had driven prices down a lot.
“What was a good deal 10 years ago often looks only average today.”
Michael Miller, CFP
Mr Miller pointed out that fees weren’t the only consideration, but a trustee that was working on having competitive fees showed that they had a focus on their members.
“There are lower cost alternatives, but it’s important before considering switching that you’ve looked at the whole package. For example PSSap members may have valuable insurance that it’s in their interests to keep, if it has a favourable health assessment.”
Mr Miller cautioned, however, that he had seen some occasions where funds were just trying to be the absolute cheapest.
“I have concerns about the compromises they make to get there, but you can get high quality management for very low cost now,” he said.
“There’s definitely no rule that if you pay higher fees it’s always going to earn higher returns,” he said.
Mr Miller believed that, while APRA’s heat-map information would probably be ignored by most, it was a strong incentive for all super fund managers to make sure their offers stack up.
“Nobody will want theirs to be in the red zone,” he said.
“A super fund is investing your retirement assets, to hopefully grow them with returns in addition to your contributions.”
“What you want as the member of course is to have as much of that return flow into your account balance, rather than paying for the administration of the fund.”
IMPORTANT: Comments from contributors or readers should not be taken as reflecting the views of the author or Super Info. You should always get licensed financial advice before making decisions about acquiring, switching or disposing of financial products, including superannuation.