POWERED BY MOMENTUM MEDIA
(May-2002) Public sector funds lead the balance race
The average account balance of the TOP 300 super funds is $92,744 and as with all averages, this hides a lot of information.
The average balances vary from $1,383 (HostWest Superannuation Fund) to $1.6 million (NSW Parliamentary Contributory Superannuation Fund).
The public sector has the highest average account balance ($199,650) and the industry fund sector the lowest ($23,411). The corporate sector averages $93,631.
Industry Fund Services executive chair Garry Weaven identifies three factors as to why average account balances are lower for industry funds, creating an extra burden for these funds.
First, industry funds cater for member protection (most corporate funds don’t). Then, some companies put casual and part-time employees into an industry fund while higher earning full-time employees and executives are accommodated in the corporate fund. And finally, the industry funds are generally newer and have thus accumulated less than corporate funds.
In contrast, corporate funds often have higher income members and thus higher balances.
The big issue, notes Rainmaker Information director of research Alex Dunnin, is how rising average balances — he reckons 10 to 15 per cent annually — will impact on services and the choice structure.
“We know the differences in average account balances are big and we know why. But what does this tell us about future services and client demands? Members take greater interest in their super as account balances grow ... They also expect to get the same online and call centre access that they have become accustomed to receiving from their banks,” he says.
“Accounts averaging $80,000 to $100,000 require a completely different marketing strategy to those of even $50,000. They are far more interested in flexibility, information and immediate service. Financial services are evolving so quickly that funds have no option but to adapt.”
Weaven believes industry funds would be even more attractive and able to charge “radically lower” fees, if they held much larger member balances.
Only larger industry funds made it into the Top 300, but Weaven can identify 132 industry funds that together have an average fund balance of $5,590. They charge an annual administration fee of $76 or 1.35 per cent, rising to $249 or 0.5 per cent for account balances over $50,000.
Weaven points out that this is in contrast to the 260 retail funds, which have average fund balances of $18,350 and charge fees of $134 or 2.4 per cent, rising to $1,200 or 2.4 per cent for account balances of $50,000 or more.
The implications are clear: if industry funds with their mammoth fixed administration charges had larger member balances, they would be radically cheaper than the average retail fund.
The Top 300’s average balances are higher than Weaven’s, as they usually use active membership figures rather than total membership figures.
As Dunnin notes: “This distorts the numbers, as it is not possible to uniformly adjust this for all funds in the survey. Using total membership distorts the figures and using active membership distorts the figures. Either way, the key issue remains whether fund services will be impacted as their membership changes profile.”
The public sector funds with the highest account balances in our survey are defined benefit plans and although our figures show high account balances, this does not mean that members will necessarily walk away with these. The plans include large surpluses and just who owns these is subject to much debate. These funds also receive higher contributions, often rising to 15 per cent, which would boost balances too.
According to the Australian Prudential Regulation Authority’s (APRA) December 2001 figures, which cover a wider universe of funds, the average account balance is $50,000 for corporate funds, $39,000 for public sector funds, and $6,600 for industry funds. However, small funds are streets ahead with a balance of $234,500.
Dunnin explains that these figures are derived from assets divided by (total) accounts, but this includes members with multiple accounts and so the real average balances could be higher.
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