Super funds facing pensions cost squeeze
Superannuation funds are facing higher demands on their cost structures as baby-boomers retire and the funds seek go provide pension accounts and other post-retirement options, according to actuarial consultancy, Rice Warner.
In new analysis released this week, the consultancy has pointed to the costs of servicing members no longer in the accumulation phase as being an evolving challenge for Australian superannuation funds.
The analysis, by Rice Warner senior consultant, Alun Stevens, points out that pension accounts have different characteristics to accumulation accounts.
"Retirees, who by definition are Choice members, have a one-to-one relationship with their fund. This is different from accumulation accounts where there are significant scale benefits from dealing in bulk via employers," Stevens' analysis said.
He said the level of service demanded by holders of retirement accounts was also much higher than that demanded by accumulation members and, consequently, they were more expensive to service and their fees were higher than for accumulation accounts.
"The large numbers of members retiring from the system will have an impact on fees as funds will need to increase their resources to service their members approaching and in retirement (including many working past 60, but using the tax-free earnings of and pension payments from their TTR pensions)," the Rice Warner analysis said.
Stevens noted that another factor would be the general shrinkage of the number of accounts within funds.
"The ATO consolidated 265,000 accounts (with balances of $1.3 billion) in the six months to December 2014. In time, consolidation could reduce the accounts from more than 30 million to less than 20 million. This will require super funds and some of their service providers (particularly administrators) to review and change their underlying fee structures," he wrote. " Fees are largely determined by the total number of accounts with the ‘rule of thumb' model for many funds being a flat $1.50 a week per account."
"It is not difficult to see where future (and current) tensions lie. Funds which deploy a flat-fee model and expect to pay for everything within that fairly inflexible pricing structure will be found wanting. As we expect growth in member services and marketing, funds will remain under some cost pressure. In many cases, cost savings will be redeployed to provide enhanced services for members."
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