Australians are paying $31 billion in superannuation fees every year, with half that money going to funds that manage just 30 per cent of all accounts, according to a report commissioned by Industry Super Australia.
And banks are raking in about $8.7 billion of those fees, making super "a honey pot for Australia's scandal-prone banks", according to Industry Super Australia chief executive David Whiteley.
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Targeting superfluous super
The Productivity Commission says we have too many superannuation accounts. Peter Martin explains the logic.
Meanwhile, not-for-profit funds collected $13 billion worth of fees while managing 42 per cent of Australia's $2.2 trillion worth of super savings. But the retail sector, which includes banks, collected $15.5 billion for managing just 29 per cent of funds, according to a quantitative assessment of fee revenue by the Rainmaker group.
The big difference is in retail funds spending $5.4 billion on advisors and $3.9 billion on trustee offices and administration, while the not-for-profit funds spend $5.2 billion on investment managers, and $1 billion less on trustee offices and administration.
Mr Whiteley said he is more concerned about the vertically integrated model that funnels so much money towards Australia's Big Four banks, Macquarie, and AMP, which collectively received about $12 billion in 2016.
This is because they control a majority of Australia's platform retail super fund market, a majority of the advice market, and 42 per cent of the group insurance market.
"The proportion of fees [banks] are generating is because they have business in each part of the way that the super system works," Mr Whiteley told Fairfax Media.
"Questions now need to be asked about the extent of fees that the banks are generating and whether it is legitimate and appropriate."
There is ongoing tension over super policy between the union-aligned industry funds and the bank-aligned retail sector.
The Financial Services Council was unavailable for comment, but has previously argued in favour of more competition and flexibility so consumers can choose their fund.
But Mr Whiteley said Australians may not pay attention to fees due to "profound disengagement" many people have with their super accounts.
"It would be irrational to stay with a bank owned super fund," he claims.
Meanwhile self managed super funds [SMSF] collected just 7 per cent of fees but accounted for 30 per cent of funds under management. The bad news is this option is only viable for the very wealthy, according to Mr Whiteley.
"Unless you have got a couple of million dollar in your [SMSF] account then historically the returns have been inferior to the managed super sector," he said.