Popular industry super fund Hostplus will cut the administration fee on its account-based pension product by $156 a year, in a good-news step for retirees keen to create an income stream.
Hostplus, which is one of the country’s biggest industry funds, with almost 1.2 million members and $47 billion under management, will reduce its admin fee on the product from $7.50 a week (or $390 a year) to $4.50 from April 1.
The way Hostplus charges fees is already different to many other super funds, because it charges a flat, dollar fee rather than a fee set as a percentage of a member’s assets under management. Now, CEO David Elia says that the even lower admin fee on its pension product would cement Hostplus as one of the lowest-cost super funds in Australia.
“Unlike the straightforward, fixed, weekly dollar-based fee, asset-based fees, which are a percentage of your account’s balance, are often charged in addition to fixed fees by many funds,” Elia notes. “And [they] typically increase as your account balance does.”
Just 2 per cent or about 23,000 of Hostplus’ current members are over the age of 65, according to SuperGuide, and thus in the most popular age group for retirement, but upping the ante on pension fees could change that.
The fund, which is one of Australia best-performing super funds based on returns over the past 15 years, has already grown in popularity in recent years thanks to the backing of the influential money writer Scott Pape, better known as the Barefoot Investor. In fact, Elia reportedly told the recent banking royal commission that Pape’s unsolicited endorsement had resulted in an additional $2.5 billion being poured into Hostplus’ funds by Aussie workers.
Most of those workers are likely to turn their super savings into an account-based pension when it comes time to retire – and that’s the product Hostplus has just slashed fees on.
An account-based pension allows the account-holder to draw down a pre-determined amount from their super balance each year as income, while the rest of the balance remains invested and thus has the potential to continue to achieve investment growth.
The minimum amount that must be drawn down each year is set by the government and ranges from 4 per cent to 14 per cent of the total super balance, depending on the age of the account holder.
Hostplus’ fee reduction came after another prominent industry fund, AustralianSuper, announced that it would increase the admin fees on its account-based pension and transition to retirement products from $1.50 to $2.25 per week, for a total of $39 per year.
AustralianSuper said the fee increase would come in after March 30 and was the first increase the accounts had seen in almost a decade. Despite this, the fund assured members that it remained one of the lowest-cost super funds.
Camille Schmidt, the market insights manager at SuperRatings, one of Australia’s top super research houses, says that super funds across the sector feeling the pressure to increase fees as they wrestle with an onslaught of legislative changes and increases in regulatory and compliance requirements. But she says only a handful of funds have so far raised their fixed fees or revised their percentage-based administration fees.
“Many providers are waiting to analyse the full impact of transfers in and out of the fund, thus the true impacts of recent legislative changes, such as Protecting Your Super, are expected to materialise over the coming year,” Schmidt says.
Protecting Your Super (PYS) refers to reforms brought in by the government in July 2019 that were designed to protect workers with low super balances from having their savings eroded by fund fees. The PYS reforms require funds to transfer inactive accounts containing less than $6,000 to the Australian Taxation Office so the account can be merged with any other accounts a worker may hold with other funds, to cap fees and charges at 3 percent of assets for funds under $6,000, remove insurance policies from inactive funds and stop charging exit fees entirely.
When it announced its fee increase, Australian Super said the change was necessary to cover the gap left by some of the charges outlawed by the PYS reforms.
“We note that some providers will need to increase fees to fill the revenue gap from the loss of membership and merging will be a key consideration for those with significant sustainability challenges,” Schmidt cautions.
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