Reducing Super Fees

The Superannuation Minister, Senator Sherry, has indicated that one of his prime objectives is to reduce superannuation fees of retail and industry funds.

The Senator has indicated that this will be achieved by:

• removing tax barriers to super funds merging
• introducing simplified super fund offer documents
• introducing a contribution clearing house; and
• allowing lost super accounts to be allocated using tax file numbers.

The object of reducing fees is commendable.  However, the biggest cost of retail and industry funds is software costs (which is primarily driven by regulatory and investment options complexity) and the cost of the taxes imposed on super funds (in particular the contributions tax of 15%).

There are tax barriers to retail and industry funds consolidating.  These include the fact that there is no CGT rollover relief on fund mergers.  However, the Government has recently announced that just such a relief will be provided.  Unfortunately, this relief will be limited to APRA regulated super funds with 5 or more members.  So, SMSFs and small APRA funds will not benefit from this measure.

While there is a material cost to the production of superannuation offer documents, this cost is not a significant driver of super fund expenses.  The length and complexity of offer documents is primarily caused by the product features offered by super funds and by the desire to comprehensively deal with all relevant issues so that the Regulator or dissatisfied investor will be precluded from subsequently claiming that the offer document was misleading by omission.

If the government is serious about shorter offer documents, then the liability rules relating to offer documents will have to be modified.  In the absence of any modification, no issuer will introduce short (10/15 page) offer documents and the government can issue as many model offer documents as it likes since it will not be exposed to any liability in respect of the short document.