MySuper products were released on the first day of this year and many Australians are set to save over 30% per annum on their superannuation fees. But, warns a researcher, not before they pay an extra $2 billion in fees before the final implementation date of 1 July 2017.
This is because funds do not have to transfer their members to the cheaper MySuper options until 1 July 2017. This transition period means current assets in many cases will be retained in people’s existing accounts, with fees charged at the old rates, researcher SuperRatings said.
The MySuper concept, which was first mooted in the Super System Review of 2010, was designed to ensure those who had little or no involvement with their superannuation paid minimal fees.
SuperRatings reviewed and rated over 90 MySuper products in the industry to see how changes are going to affect consumers.
The company’s founder Jeff Bresnahan said while MySuper products have largely achieved the Super System Review’s goal of reducing total fees to 1% per annum, with the industry average now sitting at 1.02%, what will be interesting is how investments do over coming years.
“There has been an unfortunate leaning towards passive investments purely to reduce fees. If that impacts future earnings, then the whole exercise of forcing MySuper into the industry will be not only negated, but detrimental to Australians future retirement benefits.
“It’s also interesting that despite a launch date of 1 January 2014 for many MySuper products, the ability to delay same until 1 July 2017 for existing members means that the break-even point for net fee reductions to flow through the system may be as late as 2020, some six years away.”
The only way to ensure higher than necessary fees are not paid is for unengaged members –who by definition have had little or no interaction with their fund – to contact their fund and ask for a transfer to MySuper to happen, he said.
SuperRatings found many of the retail banks which launched new MySuper products, and Australians with their money in corporate retail products, are the biggest beneficiaries with expected savings of more than $700 million per annum in lower fees.
The reduction in this sector on a $50,000 account balance is 36%, with average fees dropping from $932 per annum to $593 per annum. However, this is also the sector which will take the longest to transition members, SuperRatings said.
By contrast, the not-for-profit sector, including industry funds, have reduced costs by 5% over the past 12 months and their average annual MySuper fee on a $50,000 account balance is currently $498. The majority of this sector has indicated members will be transferred immediately.
The review of MySuper products threw up some “interesting results”, including a strong performance of retail funds due to substantially improved value for money and transparency of overall fees, SuperRatings said.
The ratings are available on SuperRatings website.