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Choice of fund competition drives down fees
mike taylor
The competition generated by the advent of choice of superannuation fund has resulted in the fees being charged by funds being driven down across the board, according to the latest research released by the Investment and Financial Services Association (IFSA).
However, the research, conducted by Rice Warner Actuaries, suggests that it has been in the area of large corporate master trusts, retail post retirement arrangements, personal superannuation and small funds that the biggest declines in fees have occurred.
The research also suggests that industry funds are not as cheap as they might seem, coming up with a figure somewhat higher than that accepted by the Australian Prudential Regulation Authority (APRA).
The research prompted IFSA chief executive Richard Gilbert to suggest that consumers have been well-served by choice of superannuation fund because it generated increased competition and increased funds under management, which had, in turn, placed downward pressure on fees.
Gilbert said, overall, fees for the superannuation industry, expressed as a percentage of assets, averaged 1.26 per for the year to June, 2006, down from 1.30 per cent in June, 2004.
The Rice Warner data placed the expense ratio for industry funds at 1.13 per cent, and the actuarial firm acknowledged this is somewhat higher than that suggested by APRA.
“We estimate that total incurred expenses were $1,718 million, which may be expressed as 1.13 per cent of assets over the year,” the Rice Warner analysis said. “This is considerably higher than APRA’s estimate of the investment and operating expenses of industry funds over the period, which may be expressed as 0.76 per cent of assets on the same basis. However, our analysis includes an estimate of investment management expenses deducted from fund earnings in addition to the explicit investment costs reported in the accounts.”
24 May 2007
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