The multi-million hit to industry super fund fees

Superannuation funds, and particularly industry funds, could be facing the loss of up to $150 million in fees as a result of members emptying their accounts under the Government’s hardship early release superannuation regime.

New analysis conducted by HFS Consulting had also pointed to the degree to which industry superannuation had been disproportionately hit by the early release regime with around 65% of all payments made coming from industry funds, compared to 26.03% for retail funds.

However, the HFS Consulting analysis had revealed the impact on the lifeblood of superannuation funds – fees.

“…there has been a total of 2,988,976 initial applications for withdrawal,” it said.

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“If 50% of the applicants were to run their balances to zero and close the accounts, this would see almost 1.5 million fewer accounts. Assuming an average administration fee of $100 a year this equates to a loss of $150 million of fees.”

The analysis noted that additional fees would also be lost to fees charged for funds under management and lucrative fees for life and disability insurance.

Looking at the way in which industry funds had been disproportionately hit, HFS noted that total payments made as a percentage of the total membership benefits (in effect the net assets of the fund), industry funds had paid out 2.9% –  ­more than double retail funds at 1.32% and public sector funds at only 0.71%.

“The average payment made across all funds are quite similar. With an average of $7,638 for industry funds, $7,917 for retail, $8,384 for public sector and $9,201 for corporate funds. This would suggest that many are deciding to make full withdrawals,” it said.

“The ‘average of averages’ (as opposed to a simple average) is a little higher. What is alarming is the average payment as a percentage of the average balance held in the funds. For industry funds, the average payment is $8,077 while the average balance in the fund is only $77,794. This means that 10.38% of the average balance is being withdrawn. For retail funds it is 5.79%.”