Almost half super fund switching is into higher fee, lower return, funds

Almost half of people switching superannuation funds are moving into funds that charge higher fees and have lower investment performance than their previous fund.

New research indicates that 49% of people who switch super funds end up paying higher fees, 20% pay a lower fees and 31% pay roughly the same in fees.

In aggregate switching super funds results in a net increase in fees paid of $137 million. Retail super funds account for 92% of the $170 million fee increase.

56% would have received lower returns with their previous fund, 36% would have received higher returns and 8% would have received roughly the same. However there is again a difference between retail and industry funds. Switching resulted in a $284 million net decrease in investment returns. Retail funds accounted for 87% of the $373 million decrease in returns. Industry funds accounted for 52% of the $89 million increase in returns.

72% of the super fund switching was into retail super funds.

The research was conducted by RiceWarner and commissioned by Industry Super Australia – which is currently battling with retail super funds over how default super funds are selected. The Productivity Commission will release its proposed changes to the default super system in 2018.

RiceWarner says that members switching super funds are unlikely to have used fees or investment returns as part of their decision to switch super funds. Other research, also recently released by Industry Super Australia, indicated fees were the most important factor for consumers when selecting a super fund.

“Logically, consumers exercising informed choice would switch to lower-fee and higher-performing super funds but the reality is quite different,” said Industry Super public affairs director Matt Linden.

“It appears that consumers are simply making uninformed decisions in a highly complex area,” he said.

“Technology and banking relationships are being used to entice people to switch without thinking. It is clear fee disclosures and consumer safeguards need to be urgently strengthened.”

Industry Super Australia has been critical of recent changes to super fund fee disclosures.

The research was based on de-identified member data for 2013, 2014 and 2015 financial years. The research did not include an analysis of SMSFs, as the “data is not available”.

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