Senior Australian Treasury official, Dr David Gruen, has today slammed Australia’s sky high superannuation fees, which cost members some $20 billion last year and are around three times greater than those prevailing in the United Kingdom. From Business Spectator:
Australians spend around $20 billion annually on superannuation fees, which equates to over one per cent of GDP.
“A microeconomic reform that permanently reduced costs across the economy by a few tenths of 1 per cent of GDP would be considered a significant and worthwhile reform,” he said.
“Significant reductions in superannuation fees would have widespread benefits for society as a whole.”
Mr Gruen said while international comparisons are difficult, it is estimated in 2011 Australians’ average superannuation fees were around three times those of the UK.
Gruen’s criticism of superannuation fees is justified.
If superannuation was a well functioning and competitive market, average fees would have fallen as the value of funds under management has risen. After all, it should not cost ten times more to manage $1 billion of funds under management than it does to manage $100 million.
Yet, despite the huge explosion of superannuation balances since the superannuation guarantee (compulsory super) was introduced in 1993, average fees have barely changed, according to the Grattan Institute (see below charts).
According to Grattan:
A larger system of larger funds should have incurred lower costs and charge lower fees, because big funds have lower costs…
Australian funds charge fees that are three times the median OECD rate, on average… Many countries have superannuation pools much smaller than Australia’s, yet their funds charge customers much less.
All of which suggests that Australia’s superannuation funds are not just inefficient, but are gouging members – helped along of course by our system of compulsory contributions, which has provided the industry with a “sheltered workshop” within which to operate.
When combined with the egregious budgetary cost of superannuation concessions, one wonders why Australia persists with its compulsory superannuation system.
