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The confusion of comparing apples with oranges
Despite all the talk, superannuation funds are still not easily comparable and little progress has been made in fixing the issue. This is part three of a roundtable.
Mike Taylor (MT) (chair) – managing editor, Super Review
David Haynes (DH) – policy director, Australian Institute of Superannuation Trustees
Andrew Proebstl (AP) – chief executive, legalsuper
Brian Zanker (BZ) – head of business development, Mercer
Robin Petrou (RP) – chief executive, Energy Super
David Bardsley (DB) – director, superannuation, KPMG
Jocelyn Furlan (JF) – consultant, former Superannuation Complaints Tribunal chair
BZ: Just on the point of fees, because David you raised the fees, and I agree. I think it’s a sad situation where there’s a fee comparison but the disclosure of fees is quite different in so many circles. And I know MySuper was supposed to create transparency across all that but if you’re a member, how hard is it to pick up a PDS [product disclosure statement] of a super fund and compare it to another super fund? And even the comparison tools that are available to them, that’s really hard at a member level. So I’d love to see more done on that.
DH: And there is not true comparability of funds – the whole question about having consistency of definitions and cost, fees and costs being put into the same buckets across the board. That was what was supposed to happen but that hasn’t actually happened.
If the idea is that people will become more financially literate and engaged, that they would then look beyond the MySuper product that they’re in and look for a choice option that might be available for them. Well there is no choice product dashboard in place at the moment. That’s something else that’s on the drawing board. And you’re absolutely on the money. Until there are transparent and comparable tools that will assist people, people will run the risk of being taken advantage by predatory elements in the industry.
JF: But even going back one step, most Australians don’t even want to have to do that comparison and nor should they. That’s when I come back to the duty of care, that I think that the obligation is that a member shouldn’t have to do that and still end up in a fund that doesn’t charge too many fees, is efficiently run and provides them with the best possible chance of maximising their retirement income.
DH: And that’s the genius of the trustee system in a nutshell.
RP: I was going to say and that’s the genius of an employer based scenario because what you’ve got right now in reality is a lot of industry churn. So people are disrupting the magic of compound interest over and over and over again as they get pushed and pulled from one fund to another across the industry.
I mean you look at some of the APRA [Australian Prudential Regulation Authority] stats. The churn that’s going on, it’s incredible. And the amount of time that people are out of the market, the changes that they’re having, it’s going to have a complete impact on their retirement outcomes. So have we actually achieved anything other than increase costs, potential of loss of money, there has been no fee drops. So why isn’t the government sitting there saying okay, we’re into the Murray Review and the Cooper Review, we’re X number of years in, let’s have a good look to see whether anything that we’ve implemented, such as MySuper, actually works. And if it doesn’t, why are we continuing to put in recommendations?
DH: Well, there’s actually a process which should be the focus. And the other Productivity Commission review is the one dealing with the competitiveness and efficiency of the superannuation system. And that’s actually looking at what are the appropriate metrics for determining the best outcomes for members, the best fit for people having regard to their age and where they work. And that’s taking very much a backseat to a lot of these other more ideological debates about governance and defaults.
AP: I was just going to say the other thing I think is the Productivity Commission, the work it does, it has a theme of having a favouring competition and trying to encourage competition. But in the superannuation environment, competition doesn’t mean what it means in other sectors. So there’s lots of elements of structural aspects of the industry –
RP: Competition is actually lost.
DB: Correct. So we put it in as investment options, competitive landscape against – where we compare directly with retail funds. They just threw additional product on the table and then stepped back and watched us cannibalise our lost cost model.
BZ: Part of our challenge is simplification at the member level. And as we were talking, you reflect on walking into a supermarket, not that I do that very often at all but you walk into a supermarket and you want to buy something that’s of a quantity and on the shelf it says it’s going to cost you this cost of whatever package size you’re buying.
RP: $1 per 100 grams.
BZ: $1 per 100 grams and if you’re buying a bigger lot if might be 95 cents per 100 gram. So you can actually see it quite easily.
RP: So did you know with $100 you have permutations of choice of 10 to the power of 603.
MT: Thanks Robin. I really understand what you’re talking about.
RP: Just happened to work it out last night when I had a spare five minutes.
DH: Do you know what? We confuse things so much in this industry. So we’ve now got RG 97, we wouldn’t know how much that’s costing, how much that’s costing the industry to try to get underneath the covers.
RP: And we’re not comparable. We’re still not comparable.
DH: No.
DB: But the end result will be requirements that make no sense to members. So it’s an enormous amount of focus and effort but it doesn’t actually increase the level of consumer engagement or understanding of how much their funds cost.
RP: And as a trustee it’s hard to support something that costs members money, not just effort and all those things but actual cost where what – we do everything for the benefit of our members and you sit down – and I don’t know whether the regulators ever say we think that if you expend this money, this is going to benefit your members in this way to your point David, if it doesn’t make any sense to members and it doesn’t empower them, that’s a cost that again erodes retirement incomes.
DH: Yes and the way competition operates in this sector is quite different from some of the pure market conceptions and I think your point was very well made Andrew, and there was a very comparable example in relation to energy providers. And I don’t know if any of you have seen the recent reports about this, people are able to choose their own energy provider. What has happened in the market?
People have been clipping the ticket more, people have been spending more money on advertising, but at the same time the level of consumer engagement and knowledge about how to choose an energy provider has actually gone down. And I suspect the vast majority of people would say I love getting my bill from the SEC and knowing how much it is and there probably should be a mechanism to ensure that the SEC doesn’t charge too much but at least I know they’re operating under a government fiat and should be doing the right thing by me. People don’t have that confidence at the moment and that applies equally to superannuation.
AUTHOR
Staff Writer
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It's actually getting extremely difficult to calculate the total admin fees on a retail product. I went through all the products on offer from a major bank & their subsidiaries, & its been a real eye-opener. It's incredible the difference in admin fees, depending on product & FUM, even from the same supplier.