This year’s TOP 300 super fund survey confirms that industry funds continue to lag the pack when it comes to account balances.
Industry funds in our survey have an average account balance of $15,346, which trails the $81,648 enjoyed by corporate funds and is less than a 10th of the $158,960 average figure boasted by public sector funds.
One reason for the lower average account balances of industry funds is that some companies put their lower earning blue collar and casual workers into industry funds while higher earners and executives are accommodated in the corporate fund. Another is that industry funds are generally newer and have thus accumulated less than their corporate and public sector counterparts.
The good news for industry funds is that their average account balances have surged from $9,412 two years ago despite the battering investment markets have taken over this period.
Indeed, Industry Fund Services (IFS) executive chair Garry Weaven says industry funds have been growing their funds under management in both the good years and the bad.
He says funds under management of the 13 industry funds administered by Superpartners, a company of which he is chairman, have risen by 8.7 per cent over the past calendar year. “In the good years, the funds under management of these funds can rise by 25 per cent, but they can also grow by 10 per cent in the bad years,” he says.
The bad news for industry funds, with their generally low administration fees, is that they would look even more competitive if these were divided over bigger account balances.
The problem with many industry studies on Management Expense Ratios, adds Weaven, is that these often assume that everyone has the same account balances.
He believes that many high income earners are not aware of the cost advantages of being in an industry fund because their financial planners don’t tell them about them.
While he doesn’t advocate paying financial planners commissions, Weaven believes that if some industry funds ever started to do this, “the cost differences would be so huge even after the commissions, it would be hard to see why any adviser wouldn’t recommend an industry fund”.
According to Weaven, industry funds are able to charge less because of their massive economies of scales. They are also not-for-profit organisations and their costs are lower because they tend to pay lower salaries and bonuses than other parts of the financial services industry.
The Australian Preservation Fund tops the list of super funds with the lowest account balances, that of $312, which isn’t surprising given that its main role is to return small and lost superannuation accounts to members’ active super accounts elsewhere.
This compares with the whopping $1.36 million average balance of the South Australian Parliamentary Superannuation Scheme or the $1.20 million of the South Australian Judges’ Pension Scheme.
John O’Flaherty, the general manager of both these public sector funds, attributes their high balances to their design and to the fact that they are both fully funded by the employer. Both also boast members in higher income brackets than most other super funds.
The Parliamentary scheme also has fairly high rates of member contributions — around 11-12 per cent — but the judges’ fund is a non-contributory defined benefit scheme. “There’s a healthy balance in the judges’ fund and it has very few members,” explains O’Flaherty.
