Prepare clients for super fee increase

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For the first time in superannuation history, membership numbers across super funds have declined in 2013.

This may come as no surprise considering the ATO have started transferring lost super to the Tax Office, but SuperRatings has warned that there will be a nasty side-effect for members.

The research house says that the decline in membership is likely to represent a significant shift in thinking for the industry and may force some to re-consider their fee structure. SuperRatings head of consulting Adam Gee says that the old model of charging a dollar a week per member and similar fees, are likely to be dropped.

“What we suggest is we’ll probably start seeing asset-based fees from administrators coming in, or activity-based fees more so than these dollar-based fees that they currently charge," says Gee.

He thinks increases are likely to come from third-party super fund administrators, who previously based numbers on an assumption of growth. As a result, super funds will be feeling added pressure to maintain membership numbers, while also mitigating any possible increases in fees charged by their service providers.

The larger super funds are anecdotally faring better thanks to greater resources, though some are using the opportunity to get rid of low-balance members, says Gee.

For instance, while the average reduction per fund was 1.5%, one fund lost in excess of 14.6% of its membership during the year.

Insurance premiums are also feeling the pressure, and a couple of super funds – AustralianSuper and REST – have already raised premiums by 30-40% in the past few months.

As the ATO increases membership transfers to those with $6,000 in lost super, the overall reduction in the number of lives insured combined with recent poor claims experience means that insurance margins and overall insurer profitability will continue to be squeezed.

The main thing for advisers is to make sure, and continue to be aware of, changes to fees going forward, says Gee. Particularly in relation to some of these large funds that have significant memberships.

“Continue to track the impact of some of this – not only the transfer to the ATO, but the impact of the account consolidation and what that has on the overall fee structure for some of these funds.”

  • Ben CFP on 29/08/2013 12:45:13 PM

    Um hello!!!! Industry funds have been increasing their ongoing fees for years (but have kept quiet about it of course) and many not only continue to charge the '$1 per week' but now have asset based fees as well (and these have been on the increase as well). On top of that many unions are reducing/eliminating their 'donations' to these industry funds so they need to get their income from somewhere, and guess where that will be from.....members of course. Finally some truth may start to come out about these 'low cost' funds. They have never been transparent with their fee structures but have been happy to have a go at 'retail' funds for all these years. Maybe Karma might be on its way!

  • Andrew on 29/08/2013 10:43:05 AM

    This is a "welcome to the real world" to some of the newer super funds with obvious advantages over inflows.
    Like government it doesnt matter what your revenues are, it is crucial that they are higher than your expenses.
    The ISN has just appointed a new chair and deputy chair and neither of them have any comprehension of running a business at a surplus so good luck ISN.

  • James Smith on 29/08/2013 10:01:48 AM

    The truth is the $1 a week admin fee has never been the true admin cost. The TV ads that compare after fee performance over 20 years are clearly based on faulty assumptions and should be banned. How many consumers acted on the assertions made in these TV ads ? Who is going to be held responsibility for misleading consumers ? Direct marketing to consumers without adequate regulation makes a mockery of the significant gains made in the advice industry to protect consumers. The industry funds track record in using such advertising should highlight the need for scepticism in the legislation they have been lobbying government to implement.

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

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