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Aussie Super’s super fee gouge

Paul Rickard
Thursday, March 21, 2019

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Australia’s biggest superannuation fund, Aussie Super, is set to increase its administration fee from $1.50 per week per member to $2.25 per week, an increase of 50%. From 30 March, 2.2 million Australians will pay higher fees, netting Aussie Super an extra $86m each year.

That’s $86 million to spend on more TV advertising, Qantas Frequent Flyer points for new members (currently 20,000 on sign up) and other “useful” member benefits.

To be fair to Aussie Super, this is their first fee increase in almost a decade. They say that the monies will also go to “provide better products and services for you”, which will include upgrading digital technology and improving cyber security, developing new products and services, and briefings, seminars and on-line tools.

And of course, it is only $39 a year per member. But for a member with a balance of $2,000, that’s an extra fee of almost 2%.

It’s not the only admin fee. Retirees drawing a pension or income stream, through Aussie Super’s Choice Income or TTR Income (transition to retirement) products, pay a fee of 0.11% pa on their account balance. This is on top of the investment management fee of around 0.66% pa for the balanced option, indirect transactional costs of another 0.05% pa and potentially, an exit fee on any lump sum withdrawals.

The interesting point about this fee increase is that if it was a Bank owned retail super fund increasing a fee by 50%, Bill Shorten, the media and other bank bashers would be calling for a Royal Commission. But because it is an industry super fund which has made a virtue of being a low fee, top performance fund  that is “run for you”, there is absolute silence. Not a word.

Fortunately, Bill Shorten, who was a Director of Australian Super when he ran the AWU, has had the sense to slap down the trade union bosses who think that they can use the industry super funds to pressure big companies to pay higher wages and offer better working conditions (see Peter Switzer’s article at Michele O’Neil, an alternate Director of Australian Super and President of the ACTU, was one of the chief cheer leaders.

Peter pointed out that under law (s62 of the Superannuation Industry Supervision Act), the sole purpose of a super fund is to “provide benefits to its members upon their retirement (or attainment of a certain age), or for beneficiaries if a member dies”. Running industrial campaigns is wholly inconsistent with this sole purpose.

While on the subject of industry super funds, one of pieces of market “scuttlebutt” doing the rounds is that retirees running their own SMSF and potentially impacted by Bill Shorten’s ban on excess franking credit cash refunds should consider moving their super monies to an industry super fund. This is flawed thinking.

Firstly, it is highly unlikely that Bill’s proposed ban will be legislated as it currently stands. Very few commentators expect that the ALP and the Greens combined will have a majority in the Senate, meaning that Bill will have to deal with the crossbench to legislate. The current crossbench has said that they are opposed to the change, so Bill will need to offer some form of “sweetener” to get the legislation through. The most likely outcome is a cap that allows cash refunds up to a maximum of (say) $10,000 per annum.

Further, while most industry super funds are net tax payers and potentially in a better position to utilise franking credits, it is very unclear that they have the capacity (under their trust deed) or accounting technology to pass on “pseudo” cash refunds to a member in pension phase. The industry super fund won’t be receiving a cash refund, but rather, just paying less tax. As members in the pension phase don’t pay tax, it would have to work out a way to pass on the reduction in its tax bill as a credit to members in the pension phase.

I am not aware of any industry super fund that has come out in writing and said that it can do this. I am ready to be proven wrong.

And even if I am wrong, it is very unlikely that any fund can guarantee to do this over the long term. As more monies move into the 0% pension phase (which is happening  now anyhow as the super system matures), the super funds proportionally pay less tax and are less able to utilise franking credits as tax offsets.

Beware market scuttlebutt.

Published: Thursday, March 21, 2019

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