Australia Compares Well In Global Super Fee Study

Joint Deloitte/IFSA Media Release
FOR IMMEDIATE RELEASE

Australia compares well in global super fee study

29 September 2009: A recent global study undertaken by Deloitte Actuaries and Consultants on
behalf of Australia's Investment & Financial Services Association, IFSA, found that the fees charged
by Australia's larges superannuation funds compare well against the more competitive funds in the
world.

According to Deloitte actuarial partner Michael Monaghan who led the research, Australian funds,
especially the larger funds in each sector, are broadly competitive globally on administration and
investment fees, allowing for a differentiated approach to investment managemennt and the fact that
Australia will always have some scale disadvantages because of our smaller population relative to the
countries included in the survey - the UK, Japan, and the USA.

Deloitte used academic, commercial and government research, as well as its global superannuation/
pension and actuarial network to obtain and interpret data on fees charged in different countries.

"There are clear scale benefits when it comes to fees charged by superannuation funds in each country
and sector," said Monaghan. "In other words, size matters when it comes to being able to lower costs."

IFSA CEO, John Brogden, said international comparisons of superannuation fund fees are difficult
due to different regulatory environments. IFSA engaged Deloitte to undertake this study as it is
critical that forums such as the Cooper Review are aware of the significant strengths inherent in
Australia's superannuation system.

"Australia can showcase the value of our retirement savings regulatory system at G20 and other
international meetings where ageing populations present significant challenges. Deloitte's research
shows that large Corporate Master Trusts, as well as being the cheapest in Australia, have fee levels
that compare favourably with similar UK and US funds.

"These findings are a testament that our investment and financial services industry is moving in the
right direction, and we hope that Government and regulators also find this study useful and
informative in the course of their reviews into industry operation.

"Competition and choice is delivering to consumers in important areas of retirement savings, such as
superannuation fees" he said.



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"However there are areas in the corporate, retail and industry fund sectors, where further
rationalisation can provide further benefits. Deloitte's study shows us that there is still plenty of room
for efficiency gains in Australia by adopting improvements in automation and the elimination of
duplicate accounts in our system," Brogden said.

Corporate funds and corporate master trusts

The study found it difficult to make comparisons with corporate funds because the level of employer
subsidies of costs varies enormously in this area, both by fund and country. In Japan, employers
typically pay all the administration costs. Nevertheless, based on the Deloitte research, there are clear
scale benefits in every country for corporate funds including Australia.

The table below sets out our estimates of the average fees for corporate funds in the countries we
surveyed. The fees are for defined benefit and defined contribution plans in the US and Japan. UK
and Netherlands funds are predominantly defined benefit. Australian standalone plans and corporate
master trust sub-plans are either defined contribution or hybrids of defined benefit and defined
contribution.

Corporate Funds







The IFSA Deloitte study concludes that for medium and larger sized plans, both standalone corporates,
and those sub-plans within corporate master trusts, Australia compares very favourably. This reflects:

the small number of larger plans in Australia, which are well established and generally efficiently
run, leveraging scale by appropriate outsourcing of scale based functions
intense competition for these types of employers in the corporate master trust and industry fund
sectors by the most efficient operators in these segments
the benefits of scale delivered by a multi-employer plan.






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Michael Monaghan said: "UK regulators introduced stakeholder pensions in 2001 which are
essentially a low cost, no-frills, highly focused product fo low income members. These pensions are
subject to maximum fees of 1.5% p.a. of the account balance, but the major providers typically offer
fees of 1% p.a. or less. Again, scale and a larger population base are factors".
The average total investment management and administration fees for corporate funds in Australia is
around 71 basis pointsi.

The retail sector

Finding comparable data for the retail sector was the most difficult task for the Deloitte researchers
with the thorny issue of whether to exclude or include advice fees. In a number of countries, the trend
is to separate advice fees from product fees.

"We were unable to identify countries where it is common to charge a separate fee for platform costs
as in Australia," said Monaghan. "To obtain the total retail fees including advice we compared
Australia and the UK and found broadly that the total cost is comparable, with Australia slightly
higher.

"The US retail market is dominated by individual retirement accounts, with 40% of American
households owning one. Typically these exclude advice (or advice is provided separately) and provide
a very broad range of other services. Fees vary from as low as 0.20% p.a. for fully passive offering,
with the average fee being around 1.2% p.a. of the account balance.

"We believe that there is the potential for a new product set to emerge in Australia for the retail market
with lower fees, streamlined services, more online features and with advice provided separately. This
is likely to be an attractive product in the future for Generation X and Y consumers who, based on
previous Deloitte research, already control 47% of the pre-retirement superannuation asset pool in
Australia", said Monaghan.

The industry sector

The Deloitte research found that in the Netherlands and Denmark, two countries where industry-wide
funds are the dominant sector, the funds appear to have been more successful in eliminating
inefficiencies caused by lack of automation and duplicate accounts. In Australia, estimated legislated
member protection costs amount to around ten basis points per annum in additional fees.

Investment management costs

Michael Monaghan said "Conventional wisdom is that investment costs for Australia's superannuation
funds are much higher than those in the rest of the world. Generally this is so however, when the
comparisons are normalised to take into account the four key differences between Australia and other
countries, our costs are quite comparable with OECD countries."

The four major drivers of difference in investment costs between Australia and the rest of the world
are:
higher asset allocation to growth assets in Australia than in Europe (the average Dutch and
Danish plans have more than 50% in fixed income assets)





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UK, European and Japanese plans have significantly higher use of passive investment
strategies
in most sectors, there has been significantly higher allocations to alternative assets in
Australia than any of the other countries
scale benefits exist for large funds in Australia, but apply even more for the very large funds
in the US, Japan and Europe.

"After equalising for these impacts, our conclusion is that Australian fees are broadly consistent with
those charged internationally, especially for the larger funds in each sector. And the most efficient
Australian funds compare favourably with the most efficient funds internationally," Monaghan
concluded.

Key Findings: international superannuation and pension fund fees comparison

Australian funds, especially the larger funds in each sector, are broadly competitive globally
on administration and investment fees, allowing for a differentiated approach to investment
management and also the fact that Australia will always have some scale disadvantages
because of our smaller population relative to the European countries, UK, Japan and the USA
Regulatory regimes have a major impact on the structure, and therefore costs, of a country's
pension system. All countries surveyed maintain highly regulated pension systems
Scale is critical to achieving lower fees in any superannuation system and across most sectors.
The rationalisation of the superannuation industry which has occurred in Australia over the
last five years has delivered scale benefits and lower fees to most members. However there are
sectors, particularly the corporate and industry fund sectors, where further rationalisation will
provide more benefits
There is still plenty of room for efficiency gains in Australia with further automation and
elimination of duplicate accounts in our system
International comparisons are complex and need to be viewed with an understanding of the
difficulties, and lack of comparability of data in certain areas
Comparing fees as a percentage of a member's assets/account balance is the most common
method used. However, average assets per member varies widely and therefore comparisons
based on fees as a percentage of assets can be misleading especially for administration fees.
This reflects that most administration costs are related to the fund and the number of members,
not the value of the fund's assets.


NB: See our media releases and research at www.deloitte.com.au


For further information:

Michael Monaghan Louise Denver, Simon Disney
Partner, Actuaries and Consultants Corporate Affairs & Senior Manager, Media and
Deloitte Communications Communications
Tel: +61 (0) 2 9322 5347 Deloitte IFSA
Mobile: 0417 258 161 Mobile: 0414 889 857 Mobile: 0408 161 466
[email protected] Tel: +61 (0) 2 9322 7615 Tel: +61 2 8235 2520
[email protected] [email protected]





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Research methodology
In making these international and local comparisons, Deloitte used academic, commercial and
government research, as well as its global superannuation (pension) and actuarial network to
obtain and interpret data on fees charged in different countries
Deloitte selected OECD countries where private retirement funds play a similar role in the
economy and in the delivery of retirement incomes to Australia: the USA, UK and Japan have
bigger industries because of their larger populations, but Canada and the Netherlands are similar in
size to Australia, while Denmark is smaller
Comparisons have been made much more difficult by significant differences in the structure of
superannuation (pension) industries in different countries and the absence of accurate national
average charges. Deloitte was unable, for instance, to find any comparable survey to that
commissioned by IFSA for the Australian market
The major comparison challenges were:
o regulatory differences, where Australia is quite different to most countries, e.g. Australia's
licensing regime for superannuation funds is not mirrored in other countries, so Deloitte
would expect to see increased costs and possibly fees relative to other markets;
o a surprising lack of reliable data in most countries and therefore the need to compare data
from different years across countries;
o confusion between fees and costs;
o non-disclosure of fees and costs, especially investment fees which tend to be netted off
performance in some countries, leading to significant understatement;
o employer subsidies of costs for standalone corporate funds are very difficult to estimate
but are significant;
o non-existence of sectors in other countries, specifically the SMSF sector and lack of a
developed corporate master trust sector in any other country;
o maturity of funds, measured by average balance per member, can seve distort
comparisons of fees measured as a percentage of assets/member balances between
countries and sectors within countries.


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About Deloitte Australia

In Australia, Deloitte has 12 offices and over 4,500 people and provides audit, tax, consulting, and financial
advisory services to public and private clients across the country. Known as an employer of choice for
innovative human resources programs, we are committed to helping our clients and our people excel. Deloitte's
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About IFSA

IFSA represents the retail and wholesale superannuation, funds management and life insurance industries. IFSA
has 150 members who are responsible for investing over $950 billion on behalf of more than ten million
Australians. Members' compliance with IFSA Standards and Guidance Notes ensures the promotion of industry
best practice.



i 2008 Rice Warner Superannuation Fee Report, June 2008.







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