Australia's four big banks plus AMP are ripping off the country's workers with huge fees charged on their superannuation investments, a recent study has revealed.
New research carried out by Rainmaker for Industry Super Australia, a mainly union-backed body, shows that the retail super funds, largely operated by the big banks, absorb about half of all fees charged in the superannuation system, despite holding only 29% of retirement savings.
The Big Four banks, ANZ, Commonwealth, NAB and Westpac, alone charged 28% of all fees, totalling $8.7 billion. Overall, the survey found that last year workers paid $31 billion in fees on superannuation worth $2.2 trillion.
That amount of fees is about the same as the cost to the public purse of superannuation tax concessions — mainly benefitting the higher-income brackets — and about half the $45 billion spent on income support for the elderly.
That is because while the not-for-profit sector, including industry, public sector and corporate funds, charged a total of $12.7 billion in fees, $9.9 billion of that went to private sector wealth managers to provide insurance and fund management services. The not-for-profit sector kept only $2.8 billion.
A further breakdown of super costs shows how retail funds gain more in fees: retail super funds, with 29% of funds and about 45% of members, received 50% or $15 billion of all fees. Not-for-profit funds accounted for 42% of funds, 45% of members and collected 42% or $13 billion of fees.
Self Managed Super Funds, which are effectively available only to the wealthy, with millions of dollars to invest in super, had 30% of funds and 10% of members, but received 7% of all fees.
CEO of Industry Super Australia David Whiteley said: "The banks have been getting significant funds from superannuation, yet they have been underperforming the not-for-profit funds.
“The government should be evaluating whether they think it's appropriate for the banks to be generating nearly $9 billion a year from fees on super.
"The government and regulator need to find out if the bank-owned super funds are eroding workers' super savings by generating profits for the parent bank.
"The bank-owned super funds delivered returns of 2% less per annum when compared to industry super funds over 10 years. For an average income earner, this under-performance, if continued, could cost $200,000 in retirement savings over their lifetime.”
In a commentary piece in the Australian Financial Review, responding to federal government and retail super industry proposals to replace unions representatives on super fund boards with so-called "independent" directors, Whiteley wrote: "Superannuation is clearly a workplace entitlement, with the Superannuation Guarantee based on wages.
"However, when superannuation is treated as a financial product, the conduct and motivations of the finance sector come to the fore. Instead of directing all profits to members, bank-owned super funds have a conflict of interest, between providing profit to shareholders and delivering profits to members, with these conflicts supposedly managed by so-called 'independent directors' (who are generally drawn from the finance sector).
"Could it be the major banks just want to remove the competition in superannuation and obtain the same 80% market share they enjoy in banking?"