The balancing act of cutting fees and meeting regulation

Super funds have shared the pressure they feel under to simultaneously cut fees for members and meet regulatory requirements.

Last week, APRA shared how the regulator still feel there are ways that fees can be reduced particularly for those trustee-directed products (TDPs), many of which failed their inaugural annual performance test in August.

However, the regulator is simultaneously encouraging a range of measures such as extended data collection, meeting the Retirement Income Covenant aims, meeting the annual performance, and considering potential mergers for scale benefits. 

Speaking at the ASFA annual conference in Adelaide, Pauline Vamos, non-executive director at Mercer, and Geoff Lowe, chair of Spirit Super, discussed this regulatory pressure.

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“Last quarter there were 48 pieces of regulation either passed, announced or introduced, a whole raft of regulation that impacts our industry and the fund in some way. I would call on funds to drill down on the data on the past and ongoing cost of this regulatory change, the management time, the indirect, and direct costs,” Vamos said.

“We’ve got to help the government, the regulator and help ourselves with some benchmarks on whether it is costing too much. We need to get a handle on this as funds and as an industry as there is enormous pressure on us to reduce fees and it’s a challenge we all face.”

Lowe added: “There is a huge cost and impact on operational costs, which has to be paid for via member fees. This gets into the question of scale and small funds will continue to struggle with that increased cost burden, but there is no choice in this and we just have to do it.”

For some measures, Lowe said they were likely to lead to increased costs for members rather than reduced ones. This is at the same time as APRA is pushing for funds to reduce their costs for members. 

“We have to deal with it, if it leads to increased fees then that’s regrettable, but the pressure is there,” Lowe said.

The pair also discussed the increased volume of complaints super funds are receiving with data from ASFA showing complaints about superannuation increased by 31 per cent during the 2022–23 financial year. There was also a 135 per cent rise in complaints specifically about delays in complaint handling by super funds. 

“The foundational structure is resources, it’s hard to get them on the ground and training is another struggle funds face so the whole environment is challenged and fraught and it puts pressure on the team,” Lowe said.

Vamos said: “When you look at where our complaints are coming from, it’s from insurance and TPD benefits and those are very complex. Just finding out who should be the beneficiaries can take a very long time, they are extremely difficult. There’s still an element of moral hazard because fraud has always been a part of TPD and it has got a lot more sophisticated.”

Drilling further down into insurance, Lowe singled out complaints regarding insurance for mental health difficulties that had particularly spiked with the COVID-19 pandemic and related lockdowns and job losses.

“The claims landscape has changed significantly in the last few years and one factor is the psychosocial, the mental health claims, which are extremely difficult to assess and not an easy landscape to work in,” Lowe said.

“I feel for those who work in it and those who are genuinely suffering in a mental health sense, but this is a new field and a lot of learning is going on. The whole world has its L-plates on regarding where this is going and COVID-19 didn’t make any of it any easier.”