Recent research confirms that public sector funds (like GESB) offer better value for money than retail funds (generally operated by the banks).

According to a 2008 report from Chant West, an independent ratings agency, retail funds charge more than double the fees than those charged by GESB for a comparable investment option.

The research

According to research conducted by the Australian Prudential Regulation Authority (APRA) in October 2008, results show that balanced/growth style investment options (similar to default plans for most super funds) of large retail funds have earned lower net returns relative to comparable investment options from the non-profit sector over the 5-year study period. Studies conducted external to APRA show similar results and reports in the media have also highlighted this.

The fees charged are the most significant factor affecting lower net investment returns from retail funds.  

Fees impact your super

First of all, fees are necessary with any super fund to cover the costs of administering the fund and managing essential services for members to make well-informed decisions. 

However, retail funds on average charge more than double the fees than those charged by GESB for a comparable investment option according to a 2008 report from Chant West.  That's a significant difference to your account balance over time.

Minister for Superannuation Nick Sherry stated that 2% fees on an individual account - as opposed to 1% - could, over 30 years, reduce members' final returns by up to 20%. 

Let's compare

The Chant West study highlighted the difference in average fees during June 2005 to March 2008 for a $50,000 account balance. The results were:

Fees for GESB are lower because, as a profit-for-members fund:

• We have no dividends to pay to shareholders - all profits go to members in the form of competitive fees, and better products and services.
• We have the expertise to keep administration as well as major investment decisions in-house, so there are no expenses incurred to employ external managers for this service.
• We look for efficiencies in the way we manage the business, with the focus always on members.

Sources:

1. Chant West Research Report, Superannuation Industry, Fee Comparison Report, May 2008.
2. Australian Prudential Regulation Authority, Working Paper, Investment Performance, Asset Allocation, and Expenses of Large Superannuation Funds. Katrina Ellis, Alan Tobin and Belinda Tracey, October 2008.