MySuper fees problematic

The theory around standardised fees within MySuper is very simple but, in practice, it has led to distortions, according to an analysis published by actuarial consultancy, Rice Warner.

The analysis, published by Rice Warner consultant, Nathan Bonarius, argues that these distortions have occurred because the disclosed investment fees do not have any reference to the underlying asset allocation of the MySuper option.

As well, the analysis claimed that many funds had lifecycle products which reduced growth assets over the decades approaching retirement and that, apart from reducing retirement outcomes for members, some of these funds also maintained fees at higher levels than was justified by the change in asset allocation.

"Products providing an interest rate (bank savings accounts and term deposits) are shown as having no explicit fee.  Technically, this is correct as the fee is taken out of interest margins.  However, it does show cash to be the cheapest product even though it is generally the most inappropriate class for long-term investment," Bonarius' analysis said.

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It said the disclosure of indirect costs varied widely between funds and that the managed funds they invested in were not required to disclose indirect costs which made obtaining information difficult, especially from overseas providers.

"Layering of costs can result in poor disclosure where the superannuation fund does not have a direct relationship with the final asset manager," the analysis said.

It said a recent Australian Securities and Investments Commission (ASIC) class order on indirect cost ratios was making progress on improving fee disclosure by removing much of the ambiguity surrounding the old definition as well as providing some good principle- based rules for disclosure. However the analysis concluded that here was still capacity for broad improvements in fee disclosure across the industry and that this required "a focus on principles rather than a set of prescriptive rules which distort the way funds disclose their fees in order to gain a competitive advantage".