‘Zombie’ reforms see public servants face 40pc super fee hike

More than 150,000 public servants will be hit by a 40 per cent increase in superannuation fees.

The increased administration fees will affect about 155,000 savers across the $13 billion Public Sector Superannuation Accumulation Plan and the Australian Defence Force Super Fund.

More than 150,000 public servants will be hit by a 40 per cent increase in superannuation fees after the Commonwealth Superannuation Corporation was forced to stop using low-balance members and inactive “zombie” accounts to cross-subsidise other savers.

The increased administration fees will affect about 155,000 savers across the $13 billion Public Sector Superannuation Accumulation Plan and the Australian ­Defence Force Super Fund.

These funds have been forced to overhaul their fee structure for the first time in four years following government ­reforms.

The Morrison government earlier this year secured passage of laws that will impose a 3 per cent cap from July on administration fees on super ­accounts with less than $6000, which is expected to save Australians $570 million in the first year. The reforms will also claw back lost and forgotten super accounts through the Australian Taxation Office to reunite the savings with members.

The Commonwealth Superannuation Corporation, which looks after about $40bn of savings for public servants and defence force personnel, will from July increase its flat administration fee from $60 to $84 a year.

While there are about 24,000 members in the funds with low balances who will be subjected to the 3 per cent total fee cap, CSC is expecting to have 7000 inactive “zombie” member accounts ripped from it and transferred to the ATO in October.

“We took the decision to raise our fees after a thorough review of our operating costs, including the expected impacts of the recent Protecting Your Super legislation,” a CSC spokesman said.

“We have not increased our ­administration fee for four years, absorbing many cost increases over this time. We continue to look for opportunities to improve how we do things more efficiently and in the best interests of all of our customers.”

The shake-up means the total fee take on the 155,000 savers will rise from about $9m a year to $13m, while the excess fees charged to low-balance members will have to be refunded.

An analysis by The Australian previously estimated savers in union- and employer-backed ­industry superannuation funds and not-for-profit funds, such as CSC, could be hit with administration fee increases of 40 per cent a year following the federal government ­reforms.

Without implementing cost-cutting programs to bring down expenses, the average fee across the 20 largest industry super funds would need to rise from $75 to $112 per member to make up for the forgone fee revenue, which has been estimated at $225m each year.

Several super funds have ­extremely high rates of inactive accounts, which allow the funds to subsidise their active members.

The country’s largest fund, the $140bn AustralianSuper, this year lifted its administration fees for the first time in a decade in preparation for the reforms.

AustralianSuper fees rose from $78 to $117 — an increase of 50 per cent — which will bring in an extra $80m in revenue.

While retail super funds run by the banking and wealth management sector are also subject to the fees, companies can source shareholder capital to buttress the loss of fee revenue.

The Productivity Commission has found fee gouging in the retail fund sector has worse outcomes for savers due to related party transactions and high asset-based fees in the for-profit sector.