Banking royal commission: exposing the banks’ super fee rip-off

Quizzed by the royal commission, Colonial First State’s Linda Elkins acknowledged fees were the reason for poor super returns. Pic: AAP

The banking royal commission has again turned its eye to the returns the big banks have been paying their superannuation members on their simple, risk-free “cash” investments, as part of its ongoing focus on rampant fee gouging in the sector.

In April, in the first of an ongoing series of investigative articles, we exposed that the banks were paying super members returns on cash as low as one-quarter of actual market rates — in the case of ANZ, returns to members were actually negative — for no apparent reason.

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Today, counsel assisting the royal commission, Michael Hodge, said to CBA’s Colonial First State executive general manager Linda Elkins that one of the articles by The Australian had prompted internal communication between CFS and CBA.

Was it fair to say CFS and CBA were unhappy with the article?

“Yes,” Ms Elkins replied.

It was revealed CFS had paid its super members an annual return on “cash” investments of 1.19 per cent — well below the market rate — while the super fund CBA operates for its own staff had paid 2.01 per cent, a return in line with market rates.

Cash investments are straightforward — the click of a button — and require no “management” at all.

Were fees “the reason for the lower performance”? Mr Hodge asked.

“Yes, I believe so,” Ms Elkins replied.

Sadly, one of the most noteworthy things about that massive fee gouging by CBA — over 40 per cent of that investment’s entire returns for the year — is that it was actually substantially less than the gouging of cash investments by NAB, Westpac and ANZ in the same period.

The compulsory super sector, now worth $2.6 trillion, and the fourth biggest pool of pension money on the planet, has been aggressively gouged by the “retail” or for-profit super managers since its inception over a quarter of a century ago.

There is nothing special about super — it’s just money invested in markets.

The only difference is that it has some specific tax breaks, and that you can’t touch it until you retire.

It’s this last point that has allowed retail funds to unashamedly fleece their members over the past two-and-a-half decades.

The public isn’t looking, and it trusts their bank will do the right thing with their retirement savings.

Instead, the fleecing of the nation’s super will be revealed as one of, if not the biggest, scams in the nation’s history.

It is a key driving force behind the nation’s banks being the most “profitable” in the world.

The massive bank executive bonuses reported every financial results season don’t come from nowhere.

Every year Australians lose around $15 billion to super gouging by just the Big Four banks, AMP and financial services group IOOF.

To date — once you calculate the lost earnings potential the money fleeced would have earned over a worker’s lifetime — the collective losses are well over $1 trillion.

This is a monumental public policy problem: as super runs out people are forced onto the aged pension, costing us all in taxes.

As the population ages, this burden will multiply.