HOUSE OF REPRESENTATIVES, 2 MARCH 2020
Australians spend more on superannuation fees than they do on energy: over $30 billion per year. According to work by the Productivity Commission, this amounts to some 1.1 per cent of total assets, which may not sound like much until you realise that the difference between fees of one per cent and half a per cent is the difference between a nest egg which is 10 per cent bigger or 10 per cent smaller.
As the Productivity Commission noted, ‘While some may be receiving exceptional investment returns or member services, the evidence indicates that funds that charge higher fees tend to deliver lower returns once both investment and administration fees have been netted off. Higher fees also persist over time.’ The Productivity Commission further concluded that ‘Superannuation fees in Australia are higher than those observed in other OECD countries.’
The issue of superannuation fees has been one that the committee has focused upon. I personally have been disappointed in APRA's response to fees. In answer to earlier questions last year, APRA doubted the Productivity Commission's finding that higher fees were associated with lower returns. Pressed for evidence to the contrary, they were unable to provide any. In the most recent hearing, APRA said:
… I think it's simplistic to try and reduce the level of expenditure to a single metric.
While the issue of fees is complex, it is important for APRA to place a significant spotlight on the on fees and ask for greater clarity and more information from funds as to the fees that are charged from members. The APRA Heatmap does this to some extent, and APRA themselves have said that it's about enhancing comparability. I would urge APRA however to use their powers to a greater extent to ensure that all of the relevant fees are reported, given how critical excessive fees are to driving down the retirement savings of Australians.
We also heard from APRA about the issue of climate risk. APRA made the interesting observation:
… the emerging discipline of central banks and regulators globally is to project a zero carbon 2050 scenario …
It's striking that this is the view of APRA, given how out of step it is with the government's own approach to a zero carbon 2050 target. While 73 countries and all Australian states and territories have committed to a zero carbon 2050 scenario and while the government's own prudential regulator is working on that basis, the government is out of step with the business community and the international community on this issue.
APRA also answered questions relating to their enforcement activities. I was concerned that their enforcement activities may not have stepped up in response to the findings of the royal commission. I was pleased when APRA responded to a question they took on notice in the hearings to say that notices to produce had gone from two in 2018 to 64 in 2019 and that infringement notices had gone from zero to one, depending on how you count it—they actually said that, if you counted the 715 infringement notices to Westpac, it went from zero to 715. Either way, it's good to see APRA stepping up somewhat. APRA also noted that they've commenced court proceedings against the IOOF group, imposed additional conditions on the RSE licence of two entities in the IOOF group and two entities in the AMP group.
Finally, on the issue of APRA's own staff survey, on some indicators APRA is improving and on others it seems to have fallen backwards. Two that are of concern to me again come from answers to supplementary questions: only 67 per cent of staff say that APRA leaders, SM and above, in their division act in a way that is consistent with APRA's present values and only 42 per cent say that, in their opinion, decisions are made in a timely manner in APRA. That does suggest that the organisation has some way to go to ensure that it is operating as promptly and as consistently with values as Australians would expect.
Like the chair, I thank the secretariat for their hard work in this and other hearings in the busy agenda that the committee has been undertaking.
Authorised by Paul Erickson, ALP, Canberra.