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Chilean system no better than MySuper
The Financial Services Council (FSC) has sought to put to bed claims that Chile's tender-based pension system generates better member outcomes than Australia's MySuper model by utilising updated analysis from Chant West.
The analysis, presented as a supplementary submission to the Productivity Commission just before Christmas, has found that broadly, MySuper administration fees compare favourably with those of Chilean pension funds.
It found that most Chilean pension fund members (80 per cent) are in the four large funds that charge high fees (average fees of 0.65 per cent a year) whereas most Australian superannuation members are in MySuper products where fees are much lower (average 0.28 per cent a year).
"The Australian MySuper system has been successful in ensuring that all default members pay a reasonable level of fees, or at least they will after all Accrued Default Amounts are transferred by 1 July 2017," the Chant West analysis said.
It said the while the average MySuper administration fee of 0.28 per cent was higher than Chile's PlanVital's default fee of 0.17 per cent effective August 2016, the average non-profit MySuper administration fee of 0.19 per cent was very similar to the Chilean default fee of 0.17 per cent.
The analysis said the average retail active MySuper administration fee of 0.46 per cent was higher than PlanVital's default fee of 0.17 per cent.
Discussing whether Australia should adopt a tender system similar to that in Chile, the Chant West analysis said the problem encountered in Chile that led to the introduction of the tender model simply did not exist in Australia.
"A tender system may have relevance for Chile, but it is difficult to see what relevance it has for Australia given our very different structure, more sophisticated investments and the depth of competition that already exists," it said.
"The most likely result of such a tender system in Australia would be the rise of products that solely focus on cost at the expense of long-term outcomes for members. This is not in the interests of Australian super fund members or indeed of the Australian economy as a whole."
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The Chilean members in the high fee options are probably making a higher return than the members in the low return, low fee Aussie MySuper products. It's the net return after fees that matters, not low investment fees & lower net returns