The removal of exit fees and caps on passive fees charged by superannuation funds announced in this year's Budget may have unintended consequences.
As per Treasurer Scott Morrison's speech, the Government will introduce a 3% annual cap on passive fees charged by funds on balances below $6000, and ban exit fees.
While this move was touted as a means of avoiding balance erosion for younger and lower-income savers, acting NGS Super chief executive Laura Wright said the removal of exit fees will inevitably result in an increase in administration fees.
What this means, Wright argues, is that to some degree, longer-term members will be subsidising the exit costs of those who switch funds earlier on.
"It's not like exit fees in industry funds are exorbitant. They are the real cost of a member exiting from that account, and I don't think they really inhibit movement out of a particular fund," she said.
She said she's heard complaints about exit fees from "maybe five or 10 people" in her 10 years with NGS Super, adding the passive fee caps on inactive accounts may also present administrative issues: "We're still working through the Government's definition of an inactive account. You may not be contributing for 13 months, but you may still be engaged, requesting a form, speaking to an adviser - there are many reasons why you may not be contributing further over that period."
QMV principal consultant Jonathan Steffanoni was similarly cautious about the implications of the changes, saying it will require legislation and may have a "significant impact across the design of many superannuation products."
"Superannuation fund trustees should complete an impact assessment, including looking at whether there needs to be any corresponding changes to contracted fees payable to service providers. This change may require changes to governing rules, administration systems, product disclosure and other member communications," he said.
It should be noted several superannuation funds have done away with exit fees. Examples include UniSuper and VicSuper, among others.
This is an extract of a news story first published in the latest issue of Financial Standard. You can view the full article on our free iPad app.