- Analysis of data from prudential regulator APRA shows 20 of Australia’s largest super funds charge their members $3.4 billion combined each year in expenses.
- The members of 11 funds pay more than $1,000 each a year on operating and administrative expenses.
- These expenses don’t include fees to directors/trustees who can earn $100,000 each a year, or as much as $13,000 per meeting.
- There are 15 funds paying their boards more than a combined $750,000 per year.
Superannuation fund members who have their retirement savings in 20 of Australia’s biggest funds get charged $3.4 billion combined each year on expenses, according to analysis of official data.
And that’s not counting fees paid to directors/trustees, which can run to $100,000 or more to each for attending board meetings.
Overall, across 100-plus funds, more than $44.65 million is spent on paying directors/trustees and more than $5 billion gets scooped up in administrative and operating expenses.
Australia’s superannuation system is under pressure, being criticised in an investigation by the Productivity Commission and facing questioning at the financial services royal commission this week.
Australians are being bamboozled by superannuation, losing them billions every year in high fees, low returns and expensive insurance, according to the Productivity Commission.
At the top of the heap for administration and operating expenses, according to 2017 data from APRA (Australian Prudential Regulation Authority), is retail fund BT’s Retirement Wrap which charged $588.5 million.
Second is another retail fund, MLC, with $301.3 million, and followed by the industry fund giant AustralianSuper with $296.02 million.
And seven industry funds, which tend to campaign on the platform of being not for profit, are in the list of super funds charging the most in administration and operating expenses. Eleven are retail funds and two are in the public sector, QSuper and First State Superannuation.
The data from APRA covers about 26.5 million member accounts and $1.6 trillion funds under management.
The 20 funds charging the most in administration and operating expenses, as compiled by Stockspot, the robo-advice fund, in a joint investigation with Business Insider, using APRA annual statistics:
“With all of the advances in technology these giant funds appear to be willfully inefficient,” says Chris Brycki, the founder and CEO of Stockspot. “This is alarming.”
Of course, the funds would argue that the numbers are large because they are large funds with big sums invested and a lot of members.
BT has 1,226,524 member accounts and $86.18 billion in total assets, or about an average $70,000 per member.
With total expenses at $588,498,000 members pay about $480 a year each.
That is small compared to the $9,580.78 a year paid by members of Perpetual Super Wrap.
Here’s how the funds stack up when administration and operating expenses and are converted into a charge per member:
“Incredibly we found 11 funds who charge more than $1,000 per member per year on operating and administrative expenses,” says Brycki.
“Ask anyone who has tried contacting their super fund for information and you’ll hear a common story of long waiting times and canned responses that don’t answer the question. This type of service isn’t worth $10 a year let alone $1,000.”
Only 15 funds managed to drive efficiencies that result in operating costs below $100 per member per year.
There are other expenses charged by super funds, among them the fees paid to directors.
While these don’t add up to a large amount in percentage terms, some of the directors — the trustees — do well.
There are 15 funds that pay their trustee board more than $750,000 per year combined. Some trustees get $100,000 or more a year each to attend meetings.
“While $750,000 may not seem unreasonable given the size of some of these funds (and executive remuneration is often many times that of the trustees) it begs the question: is it a reasonable salary for trustee board to show up to a board meeting a few times a year?” says Brycki.
“After decades of compulsory super there’s still barely any focus within the industry on what the appropriate skills and qualifications are for a super fund trustee board or what’s expected of them.”
Here are funds with the biggest trustee fee payouts:
The top pay, the retail Executive Superannuation Fund by Melbourne-based Equity Trustees, of $1.66 million a year tops the combined pay and that for individual trustees. APRA data shows only three directors receiving $555,000 each.
However, Equity Trustees explains this is essentially executive remuneration only as there are no external directors on the Equity Trustees Limited Board.
The second on the fee list is First State Superannuation, a public sector fund, paying a total of $1.557 million to its directors/trustees. According to the APRA data, there are 13 directors, six women and seven men, who are paid an average of $120,000.
They meet nine times a year, making each meeting worth more than $13,000 per director, on average. The fund has 773,527 member accounts — nurses, midwives, teachers, police, firefighters and paramedics — and $63.7 billion funds under management.
In terms of returns, the 2016-17 annual report says Growth and Balanced Growth investment options earned an “impressive” 12.4% and 9.5% respectively for the twelve months.
The latest APRA data shows a ten year rate of return of 4.8%, a five year rate of 9.6% and one year at 11.1%. The APRA calculation represents net earnings on superannuation assets and measures the combined earnings of a fund’s assets across all its products and investment options.
Business Insider attempted to make contact with First State Superannuation. In a telephone call, the operator disconnected on learning it was a call from the media. Emails went unanswered until, two weeks later, a corporate affairs manager replied.
The fund’s annual report shows Neil Cochrane as independent chair, appointed by both employer and employee representatives. In this case employers are the Department of Premier and Cabinet of NSW, the Secretary of the Treasury of NSW, Victorian Healthcare Association and Leading Age Services Australia. Employees are Unions NSW, Health Services Union, and the Australian Nursing and Midwifery Federation.
The annual report of First State Superannuation names the directors/trustees but does detail how much each are paid. This can be found on a separate page.
The chairman was last year paid $188,904. The smallest director fee was $86,852.
First State also appears on the top 20 list with the highest administration and operating costs at $140 million, or about $190 from each member.
In third, fourth, fifth and sixth positions handing out the highest directors/trustee fees are industry funds.
CBUS pays a total of $1.253 million in trustee fees, AustralianSuper $1.221 million, Unisuper $1.153 million and Retail Employees Superannuation Trust $1.06 million.
UniSuper, with more than 400,000 members and $60 billion in funds under management, recorded a return of 9.6% in 2016-17, according to its annual report. The APRA data puts the one year rate of return at 8.3%, five years at 11.4% and ten years 5.8%.
The fund, named Pension Fund of the Year 2017 by industry ratings agency analysts Chant West, has 12 trustees. They share a current fee pool of $1.17 million, says the fund.
Here’s what they were paid:
Independent directors get $111,100 a year. The other trustees get the lower $55,000 and are nominated by academic staff, unions or the universities as employers.
Best performing growth fund
Chant West named industry fund Hostplus as the best performing growth fund in the financial year just closed for the second year in a row, returning 12.5%.
According to the APRA data, Hostplus had a one year rate of return of 12.2%, five years at 10.9% and ten years at 5.0%
This fund is also in the top ten when it comes to paying its trustees. The APRA data shows its directors, who meet seven times a year, getting a combined $1,015,000 a year.
Hostplus has nine directors, with a combination of employer representatives, unions and independents: Three nominated by the Australian Hotels Association (AHA), three nominated by United Voice, and three independent directors jointly selected by the AHA and United Voice.
Among the independent directors are former National Party MP and Deputy Prime Minister, Mark Vaile, and Peter Collins, a former NSW Opposition Leader and Liberal Leader.
The 2017 annual report shows that the chair, David Elmslie, received $165,695, Peter Collins $126,443 and Mark Vaille $97,060.
The three union appointees got between $45,139 and $56,618.
“It’s easy to dismiss this (trustee fees) cost on the basis that it’s spread across many members, but every dollar spent in salaries is one less dollar Australians can spend in retirement so it really should be scrutinised closer,” says Brycki at Stockspot.
“There are dozens of super funds paying each member of their trustee boards more than the average Australian full time salary.
“That’s extremely expensive on a per hour basis so why hasn’t this corporate governance cost translated into better investment performance, operational efficiency and outcomes for members?”
“Many of these funds have had very similar performance results over 10 years and offer otherwise indistinguishable benefits to their members.
“Should Australians really be paying hundreds of millions per year in salaries to super fund trustees, executives and staff across so many different funds for what amounts to an almost identical product?”
Some funds also spend up on advertising, seeking new members.
The 20 funds with the biggest advertising spend put $110 million into the advertising market last year:
Hostplus, which was named the the best performing growth fund, is the second highest spender at $12 million. This represents a spend of about $10.74 per fund member.
The bank-owned funds are likely to have also spent large amounts on awareness campaigns but this isn’t captured in the APRA data.
“Advertising is ultimately an expense worn by members,” says Brycki.
“Twelve funds spent more than $20 per member on advertising last year. What benefit do members get from this? Once funds reach around $5 billion in size there’s no evidence that increased scale from new members leads to lower investment or operating expenses.
“As more funds engage in a marketing war the result seems to be that costs increase and members are worse off.”
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