A new report shows around half of Australians who switch funds pay significantly higher fees and obtained lower returns than their original super fund prompting concerns bank sales strategies are exploiting consumers.
The Rice Warner report, commissioned by Industry Super Australia, looked at super fund rollover and switching behaviour in the year to June 2015.
It found that across the system (industry, public sector, retail) the estimated increase in super fees (for those members paying higher fees) from switching was $170 million p.a, of which, a staggering $157 million or 92 per cent was in the retail sector.
“Logically, consumers exercising informed choice would switch to lower-fee and higher-performing super funds but the reality is quite different,” said Industry Super public affairs director Matt Linden.
“It appears that consumers are simply making uninformed decisions in a highly complex area,” he said.
“Technology and banking relationships are being used to entice people to switch without thinking. It is clear fee disclosures and consumer safeguards need to be urgently strengthened.”
Remarkably, the government’s new proposed super rules create exemptions for bank-owned super funds so that the super products they sell will not be subject to the same disclosure and member outcomes tests as default funds.
“Given the compulsory nature of superannuation it is staggering that the government would design rules that allow banks to exploit consumers that could leave them worse off,” he said.
- One in two Australians who switched super funds in 2014-15 paid an estimated additional $170 million in fees (for those members paying higher fees);
- Of those additional fees, 92% or $157 million was in retail funds; $12 million or 7% was in industry funds;
- Retail super funds are the main switching destination accounting for 72% of all switches by assets;
- Of members switching from industry to retail funds only 7% paid lower fees;
- Members rolling into industry funds are generally twice as likely to pay lower fees than those rolling into retail funds (21% against 9%);
- The net impact of changing super funds was a $137 million increase in fees per annum;
- Retail funds accounted for 87% of decreases in investment returns (for those with lower returns);
- Net impact of changing funds is a $284 million decrease in investment performance per annum.
The Member Switching report is available here.
Matt Linden is available for interview. Contact: 0407 430 613
Industry Super Australia provides policy, research and advocacy on behalf of 15 not-for-profit Industry SuperFunds who are the custodians of the retirement savings of five million Australians.