Mega-funds advantaged by small funds regulatory lead in saddle bags

The regulatory levy scales are being weighted by a factor of 12 against smaller superannuation funds when compared to the larger mega-funds, according to major accounting group, CPA Australia.

The accounting group has pointed out to Treasury that members of smaller superannuation funds are carrying a “disproportionate burden”.

In a submission filed with the Treasury responding to a discussion paper on the supervisory levies used to fund the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA), CPA Australia has pointed out that while large superannuation funds are facing relatively minor increases, the picture is different for smaller funds which are facing a 12 times per member cost increase.

“Regarding large superannuation funds regulated by APRA, we acknowledge that the existing tiered charging structure, consisting of a restricted component (with an unchanged maximum of $800,000 and an increased minimum of $12,500) and an unrestricted component, remains mostly unchanged,” it said.

“However, there are slight increases in the per centage rates for each component. For example, a large fund with total assets of $272 billion and 2.88 million member accounts would be charged a total of $18.9 million in 2023-24, an increase from the $17.2 million in 2022-23. This corresponds to a cost of $6.57 per member account annually, up from $5.99. Overall, this levy represents 0.007 per cent of total fund assets.”

“On the other hand, a smaller fund (in the large APRA-regulated fund classification) with total assets of $31.3 million and 183 member accounts would pass on $79.70 to each member account annually. This is twelve times the per member cost of the levies to a large fund and represents a proportional cost of 0.047 per cent of the fund’s total assets, which is nearly seven times the proportionate charge for the large fund.”

“While we understand that the funding basis aligns with the size of the fund in terms of total assets, we have three observations to make:

1. Funds with fewer member accounts will pass on higher costs to each member account in order to cover the levies.
2. Due to the minimum rate charged for the restricted component, funds smaller than approximately $160 million must pass the full minimum of this component on to their members, which is relatively high compared to their overall member assets.
3. A proportional charge per member of 0.047 per cent is roughly equivalent to what a number of superannuation funds1 charge in investment management fees on indexed Australian equities options.

“We acknowledge that the government’s current policy aims to encourage mergers and reduce fees for superannuation fund members, leading to future benefits. However, we believe that the cost imposed on members of small funds in the interim is disproportionately burdensome when considering factors other than member account balances. Therefore, we recommend exploring ways to ensure that small funds are not disproportionately charged, such as capping the levies to the fund based on per member or FUM percentage costs, removing the minimum charge from the restricted component, or introducing a new tier for small funds in the large APRA-regulated fund category.”