How super investment option fees vary

How super investment option fees vary

Superannuation members who have selected an investment option other than their fund’s balanced option may be paying more in fees than they realise, according to research by Rainmaker.

The Researcher said investment management fees generally account for around half of the total fees paid by members.

However this is based on the average member who remains in the default investment option (around 40%) there is a range of members who elect to choose their own option, and for these members, the investment management fees vary significantly.

A review of the option specific fees across 30,000 individual investment option within Rainmaker superannuation database shows fees varied significantly by asset sector and by type of fund. the analysis also shows the fees for selected options were significantly higher than the fees for the default investment options within workplace funds.

The average investment management fee for workplace super is currently at 0.62%. However, once you step out of the MySuper default options, the comparative investment fee increases meaningfully.

The average fee for a diversified option is 0.84%, over 20 bps above the fee for the workplace default option.

Growth diversified options carry a slightly higher average of 0.87%.

The price of diversified options for retail superannuation funds is on average around 25 bps above diversified options for not-for-profit superannuation funds.

The range of investment fees is wider in respect to asset specific options. While cash and fixed interest options are, on average, below 0.5%, the average fees for equity options are 1.1%. Above these, options for alternative and hedged assets average 1.2% and 1.9% respectively.


Women in super

Women own less than 40% of super assets: ASFA

The share of superannuation assets held by women has plateaued over the past four years according to Australian Bureau of Statistics (ABS) data exclusively compiled for the Association of Superannuation Funds of Australia (ASFA).

Women now hold 36.4% of Australia’s superannuation assets but this number has remained steady in the four years to financial year 2013/2014. Women have also experienced a lesser percentage increase than men in average balance at the time of retirement, with the average balance for men increasing by 48.5% over the two years to 2013/14 compared to 31.6% for women.

ASFA chief executive Pauline Vamos said this reflected the different work patterns and earnings levels of men and women in their pre-retirement years.

“Even though account balances are increasing overall for women, the statistics still show that men are more likely to have superannuation than women, and also that men on average have a higher account balance. In many cases, broken work patterns and lower average wages still impede on women’s ability to save for retirement,” Vamos said.

Average superannuation balances have increased for both men and women according to the ABS data.

The average balances in 2013/2014 for all persons aged 15 and over were $98,535 for men and $54,916 for women. This is about a 20% increase from two years’ prior where average balances were $82,615 and $44,866 for men and women respectively.

Average superannuation balances at the time of retirement have also increased, to $292,500 for men and $138,150 for women in 2013/2014 from $197,000 and $105,000 respectively in 2011/2012.

Vamos said gender disparity in superannuation balances is now on the agenda, and the next step is for government, employers and individuals to take action.

“ASFA has proposed a number of options for improving the economic security of women in retirement, including raising and broadening the Superannuation Guarantee, retaining the Low Income Superannuation Contribution Scheme and amending annual contribution caps to enable people with broken working patterns to ‘catch up’ their superannuation contributions,” Vamos said.

For individuals in their early 30s, average balances rose to $36,400 for men and $25,550 for women in 2013/2014, almost two times the average balances of $20,000 for men and $14,000 for women two years earlier.

According to the ASFA Retirement Standard, a single person will need a minimum of $545,000 in superannuation at retirement to live a comfortable lifestyle. This is assuming that they will draw down all of their capital over the duration of retirement, and that they will receive a part Age Pension.

Apples to apples comparison

Beware ‘apples with apples’ super comparisons

If superannuation funds’ investment performance is to be compared on an “apples with apples” basis there are several key points to consider, according to researcher Rainmaker Information.

This week Australian Prudential Regulation Authority (APRA) member Helen Rowell told an Australian Institute of Superannuation Trustees (AIST) Governance Ideas Exchange Forum that on a number of occasions in the last few years she has “noted that comparisons of investment performance at fund level is not comparing apples with apples.”

Super funds’ investment performance has been a key issue in the debate on proposed changes to super board governance, particularly between retail and industry funds.

Rowell said a more meaningful “apples with apples” comparison is provided if the investment performance for only default assets, or specific similar choice investment options, is considered. She added it is most meaningful to focus on performance against objectives over the long term.

But Rainmaker Information said APRA and other people critical of performance comparisons need to remind themselves what choosing a default MySuper product actually means.

Rainmaker said some critics of performance comparisons use commentary about risk-adjusted returns to explain post-hoc why they underperformed other default funds in the market rather than to explain why they have deliberately chosen very conservative strategies.

For example, the top performing MySuper products in 2014-15 earned 12% but the lowest performing MySuper products earned half that, or 6%.

Rainmaker said that these performance gaps are many times the fee differentials forces the question of whether members are fully aware they are selecting such conservative investment strategies.

This focus on MySuper default products is crucial because the segment accounts for about 33% of the assets held by APRA regulated funds.

In her presentation, Rowell pointed out the proportion of assets in default products versus choice products differs significantly by fund type. She said default assets represent 65% of all assets for industry funds, compared to 17% of all assets for retail funds.

“That means the investment strategy for 83% of the assets of retail funds is chosen by the members, and the asset allocation – and hence investment performance – at fund level substantially reflects the aggregate of the individual decisions made by the choice members,” Rowell said.

Rainmaker Information is part of the Rainmaker Group which owns Financial Standard.

[via Financial Standard]

SMSF direct property investment

SMSF direct property investment jumps 60%

The value of self-managed super fund (SMSF) investment in residential real estate has jumped 60% in the last four years, according to figures from the Australian Securities and Investments Commission (ASIC).

In its submission to the Parliamentary Inquiry into Home Ownership, the primary financial markets regulator revealed that as of March 2015, the value of residential real property investments through SMSFs was $21.78 billion, or 3.7% of total Australian and overseas assets.

This is up from $19.49 billion, or 3.6% of total Australian and overseas assets, in March 2014.

Albeit from a relatively low base, there has been an increase in the value of investment in residential real property through SMSFs of 11.78% in the 12 months to March 2015, and an increase of 58.69% since March 2011.

While it is feared that SMSFs ability to borrow money to buy residential property via limited recourse borrowing arrangements (LRBAs) is helping to fuel the housing bubble, SMSF Association technical and professional standards director Graeme Colley said it is misleading to use these figures to conclude that SMSF investment in residential property is rapidly expanding.

“I’d be interested to see the whether there’s been much of an increase in the actual numbers of properties that have been bought. The rise in market value of residential property is likely to account for most of the increase,” Mr Colley said.

Colley also accused ASIC of stepping outside of its remit in drawing attention to the numbers.

“ASIC’s responsibility is to look at the provision of advice for SMSFs rather than these sorts of figures. I’m surprised to see them commenting”

The Financial System Inquiry (FSI) has recommended banning LRBAs, a move which was drawn criticism from industry quarters.

The Association of Financial Advisers dubbed a potential ban “draconian” at the SMSF Association Annual Conference back in February.

At the same conference, AMP SMSF head of policy Peter Burgess said: “So few funds use LRBAs, the effect is immaterial. Any problems should be addressed with legislation, and the effects measured before we scrap them off hand.”

[via Financial Standard]

Organised criminals

Organised criminals eye super

The Australian Crime Commission believes Stronger Super reforms implemented from 2013 have reduced illegal early release schemes run through self-managed super funds (SMSFs).

In the latest report, Organised Crime in Australia 2015, the commission explains SMSFs have traditionally been more attractive to exploitation than prudentially regulated funds. The report said because SMSFs generally hold the largest balance of superannuation assets it provides an opportunity for low-volume, high-impact fraud on individuals’ funds “that may be managed by financially inexperienced individuals.”

The commission said allowing the Australian Tax Office (ATO) to address wrongdoing and non-compliance by SMSF trustees; capturing rollovers to SMSFs as a designated service under the Anti-Money Laundering and Counter Terrorism Financing Act 2006; and established a register of SMSF auditors have all helped to reduce organised crime in the space.

Australian Crime Commission chief executive, Chris Dawson, said organised crime affects everyone.

“Whether it’s the ripple effect of illicit drug use on families and the community, the significant financial loss from investment scams or having your identity stolen by cyber-criminals — everyone is at risk,” Dawson said.

“But the fight against organised crime, we must recognise and build on the critical role the private sector, industry and the public play in this matter.”

As Australia’s superannuation pool is in excess of $2 trillion and expanding exponentially, the commission said infiltration of the system by organised crime — and associated losses through fraud — would result in more people relying on the social security system in their retirement.

[via Financial Standard]