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Canberra Presses Pension Funds on Fees

By Anna Fifield, Financial Times

March 17 2003

The Australian federal government is urging greater competition among pension fund managers amid public concern that fees are too high while returns are too low.

Helen Coonan, assistant treasurer and minister for revenue, has called on fund managers to take a "long hard look" at fee-setting practices. "There is a public perception that the focus of financial institutions is skewed too heavily towards making money for themselves" she told delegates at the Law Council's conference on superannuation, as pensions are known in Australia. "These perceptions need to change if public confidence is to be retained."

Pension savings have been compulsory since 1992, with employers required to contribute 9 per cent of each employee's wage to staff pensions. Superannuation fund managers have come under fire for delivering low returns while charging high fees. Recent reports suggest charges range from 0.5 to 2.5 per cent of assets annually.

A survey published last week by InTech Financial Services, an asset consultant, found growth-oriented superannuation funds recorded their worst annual returns in 15 years last year.

Growth funds - those with growth assets between 60 per cent and 75 per cent, representing the average superannuation fund - had their worst year since the 1987 stock market crash, when they fell 17 per cent.

Public outrage over high fees and low returns has been fuelled by the A$32.8m ($19.6m) severance payment made to asset management executive Chris Cuffe when he left Colonial First State, the Commonwealth Bank- owned funds manager, last July.

Ms Coonan said the government wanted to see greater competition, through choice and portability. The federal government is promoting legislation allowing employees to choose their fund. However, she ruled out calls to impose caps on fees and charges, saying a one- size-fits-all structure could curtail innovation.

Her comments follow a report from the Reserve Bank of Australia voicing concern about the conflicts of interest within the industry, as some asset consultants also act as wholesale financial advisers.

"Some players in the funds management industry are concerned that consultants' dual role of being in competition with funds managers while also evaluating them may present a conflict of interest," the Reserve Bank said.