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Australians pay higher fees for super -

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ELEANOR HALL: Now to research that shows that Australians are paying higher fees to super funds
than people in other advanced nations.

The research was commissioned by the Investment & Financial Services Association, which represents
retail superannuation funds.

Global accounting firm, Deloitte, says the country's largest funds are internationally competitive
but admits that there is room for improvement.

Finance reporter, Sue Lannin, has more.

SUE LANNIN: Australia has one of the most regulated retirement incomes systems in the world.

Accounting firm, Deloitte compared local superannuation funds to those in countries including the
United States, Japan and the United Kingdom.

It found that the larger funds were broadly competitive although comparisons were difficult.

Deloitte partner Michael Monaghan headed the study.

MICHAEL MONAGHAN: The key finding was that the larger Australian superannuation funds in each
sector are broadly competitive with global pension funds and superannuation funds.

Issues like the regulatory regime have a major impact on the structure of industry and the costs.

In all of the countries that we surveyed maintained a highly regulated pension system but our
system is quite different from a number of the others.

SUE LANNIN: Australians are paying more to have their investments managed but Michael Monaghan says
that's because we expect higher returns.

MICHAEL MONAGHAN: We looked at things in a cross sector. So we looked at the corporate fund sector,
the retail and superannuation funds and the industry superannuation funds and we found in each
sector, by and large, our larger funds are quite comparable in terms of fees for administration
after adjusting for differences in approach for also for investment fees.

Our investment fees are higher than in most other countries and the reason for that is because we
have a different system. We have more defined contribution, accumulation style schemes compared to
defined benefits in most countries.

We have more active management. We have more focus on growth asset classes like equities and we
have a greater investment in most of our superannuation funds in alternative assets; so like
property and private equity, hedge funds and the like. And they tend to be more expensive asset
classes to invest in.

SUE LANNIN: So is there potential to bring down those investment management fees in Australia?

MICHAEL MONAGHAN: The potential is certainly there but one might question whether that is the right
thing to do. The reason that we are paying higher fees is that we are seeking higher returns than
typical funds in most other countries which for the most part are defined benefit funds.

They have a different objective for their investments than we have with our typical account based
accumulation funds here in Australia.

SUE LANNIN: At Industry funds, funds run by unions, costs were higher too and there was room for

MICHAEL MONAGHAN: There aren't very many countries that have a well developed industry funds sector
like ours. So we're mainly compared with the Netherlands and Denmark. What we found there was that
when you make a proper comparison of the administration fees in particular, we are actually very
competitive with the Netherlands which has the largest funds in the world.

When you look at things on just a percentage of the members account balance you get a different
picture. That highlights one of the problems with making that kind of comparison particularly for
administration fees which don't really bare any relationship to assets.

SUE LANNIN: But in the report you say that there are system efficiencies in industry sector and
there is multiple small accounts. So are these factors that make the fees higher?

MICHAEL MONAGHAN: They inevitably do increase costs, but haven't made us globally uncompetitive. We
do certainly say that there is room for improvement in efficiency, not just in the industry funds
sector but particularly in that area with multiple small accounts.

Lots of people having numerous accounts in different funds and not really being aware of that.
There should be an opportunity to rationalise that, clean it up a little bit and therefore reduce
the costs.

ELEANOR HALL: Deloitte partner, Michael Monaghan with Sue Lannin.