Fees are not the most important factor when comparing superannuation funds, and have little correlation with fund performance or retirement outcomes, research by SuperRatings reveals.
SuperRatings chief executive, Adam Gee, said the net benefit should be the main consideration when comparing funds.
“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’ being the only meaningful basis for comparison of fees and investment performance,” Gee said.
“While some commentators suggest a tender process to appoint default funds as the best way to drive fee savings, SuperRatings believes this is an ill-conceived concept and any assessment based on only one criterion, is fraught with danger.”
Gee said when measuring overall value consideration must be given to other issues such as member services, administration capabilities, governance, and insurance offerings.
The report found that a fund with the lowest fee (ranked first) ranked 96 in earnings ranking and had a net benefit ranking of 41 out of 162. On the other hand, the fund with a fee ranking of 78 was seventh in earnings ranking, and came second in net benefit.
The report noted that despite the eight per cent drop in super fees across the sector it was concerned about the manner in which some fee cuts were achieved.
“In a number of cases, fund managers have moved their entire portfolio from being actively managed to a fully passive, index approach, with investment returns simply aiming to replicate the underlying indices, in a virtual race to the bottom based on fees,” Gee said.
The report said the fact that operating costs were increasing along with declining fund membership would mean ongoing cost reductions would be unsustainable.
The report took into account Superannuation Guarantee contributions, fees, taxes, and investment returns, over a 10 year period based on an opening account balance and salary of $50,000.
