Excessive super fees 'cost $14bn a year'

EXCESSIVE superannuation fees and commissions cost savers more than $14 billion a year, around half the cost of paying the age pension, a study has found.

Super

EXCESSIVE superannuation fees and commissions cost savers more than $14 billion a year, around half the cost of paying the age pension, a study has found.

The study by independent think-tank the Australia Institute says erosion will inevitably place a greater burden on taxpayers as more retirees are forced to rely on the pension because of insufficient savings.

It proposes a shake-up of the superannuation default option that could lead to some wage earners being up to $100,000 better off upon retirement.

"There has never been a proper debate in this country about the issue of superannuation fees and how to minimise them," research fellow at the institute Dr David Ingles said releasing the study today.

"Evidence clearly shows that most people simply accept the default option offered by their employer. Many don't even realise how much of their money is eaten away by fees."

Administration costs of 1.35 per cent can reduce final super fund balances by up to 27 per cent, or over $130,000 for a worker on the average wage.

Dr Ingles said a low cost "passive management fund" could slash administration fees by at least half, increasing final payouts considerably.

The institute is proposing a safety net for workers who are not currently protected by an adequate default fund through their industrial agreement.

At present, between 6 and 16 per cent of the workforce is at risk of being placed in a high-cost account if they do not make an active choice about their super, he said.

"The universal default fund would be open to any worker who wanted to opt into it and take advantage of the very low fees it would charge," he said.

It could also be used to address the problem of `lost' and multiple accounts.

"Policy-makers have failed to provide a permanent fix to the multiple accounts issue, even while commercial super funds profit enormously from fees on inactive super accounts," he said.

The study also proposes that super funds that want to charge fees of more than one per cent be required to seek permission to do so from each member affected.

"This would ensure that high fees are being charged only with the informed consent of fund members," co-author of the report John Fear said.