Retirees pay more in super fees in post-accumulation phase
The retirees tend to pay higher superannuation fees during their retirement compared to all the years they were in their accumulation phase and poorly designed retirement products can cost Aussies billions in foregone income, according to Rainmaker Information.
The research found that members paid 55% of their lifetime fees after they retired and they would draw down $1.3 million in benefits, almost $500,000 more than they retired with.
With the Retirement Income Covenant triggering a new discussion on retirement and whether the superannuation fund sector was ready for the millions of new retirees, this stressed the importance of smart retirement product design as de-rising retiree portfolios too quickly had massive financial implications, according to Alex Dunnin, executive director of research and compliance and Rainmaker Information.
“While so much focus has been on the fees paid by fund members in their working life, the fact is that fund members will pay the biggest proportion of their total lifetime fees after they retire,” he said.
However, the trick remained to ensure the superannuation system could offer well-designed retirement products enabling retirees to keep accumulating wealth while insulating them from longevity risk, Dunnin said.
The study found Australian superannuation members paid $31 billion in investment fees in the year to 30 June 2022, with the average fee ratio dropping from 1.01% to 0.95% over the last year, and members are being charged percentage-based on their investment.
According to the Rainmaker’s Superannuation Benchmarking Report, a hypothetical member paid $270,000 in contributions, retired with $820,000, while they were paying $109,000 in fees through their accumulation phase, they would pay $124,000 in fees after retirement.
This scenario assumed a member beginning employment at age 25 earning $50,000 p.a., and receiving super guarantee contributions, paying industry average fees, earning a conservative 5% p.a. each year, retiring at age 67 and drawing down an income stream benchmarked to 67% of their preretirement salary.
I’m not surprised, there’s vastly more administration required in retirement phase. Transfer Balance Cap reporting annual minimums, commutations and regular drawdowns.
I feel the assumption of the research “Assuming only minimum paymenta” is a bit misrepresentative. The retirement accounts benchmarked need to administer these feature and benefit aspects, generally without an additional cost, for other members – irrespective of these aspects being ignored for the research, the products still need to facilitate them. Not surprised at the outcome at all.