Operating costs on the rise

Super funds' operating costs have increased and will continue to do so at least for the short term, according to Deloitte Actuaries and Consultants partner Wayne Walker.

Walker said operating costs had increased steadily in 2011/12 and for the first time had reached an annual average of $150 per member (just over 6 per cent) more than in 2010/11.

"All the increases in operating costs per member that are documented have occurred before the serious work of responding to Stronger Super and other Government reforms really gets under way.

"We believe that operating costs will continue to increase over the next two to three years," he said. 

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Operating costs for the three fund models — industry, retail and corporate — varied greatly, he said, with retail and corporate funds generally offering a greater range of services and hence attracting higher costs.

Operating costs for retail funds increased by more than 8 per cent to $268 per annum, while industry fund costs increased by 9 per cent to $103 per annum. Walker said corporate funds' operating costs held steady over the year.

However, Deloitte said it was dangerous to stereotype on the issue as some funds across all types had costs of well over $700 per member.

Walker said the industry was also spending more on insurance per member. Insurance costs increased by more than 20 per cent in 2011/12 and by more than 50 per cent over the three years from 2009-2012.

The costs could be attributed to increases in basic levels of cover and the introduction of more income protection policies.

Group insurance profitability had been under pressure to June 2012, which meant funds were likely to pay more for insurance.

"The specialist group insurers are under the most pressure and we would expect to see rates firming up during the next tender cycle — this has already been foreshadowed by insurers," Walker said.

Industry consolidation would continue, Walker said, due to the certainty provided around capital gains tax relief and its extension to 2017.