By Byron Kaye and Paulina Duran
SYDNEY (Reuters) - Just two of Australia's 30 highest fee-charging pension funds are ranked in the country' top 30 performing funds, according to a Reuters analysis, a disconnect likely to come under scrutiny when managers face a powerful inquiry into financial misconduct which restarts on Monday.
Managers of nearly a third of Australia's $2 trillion (£1.54 trillion) in retirement savings will have their performance scrutinised at the so-called Royal Commission into financial misconduct, which has already roiled the banking and funds management industry.
Concerns over fees and performance have generated a groundswell of consumer disquiet in Britain and the United States about the vague language retirement funds use to justify lacklustre performance.
"There's no real transparency around fees," said Xavier O'Halloran, head of policy for nonprofit CHOICE, one of 23 consumer advocates, regulators and pension funds which are scheduled to appear at the commission.
"They seem disinterested altogether and are hoping the spotlight will shift off them quickly."
The latest round of hearings may pile more pressure on the shares of the country's four biggest banks and top financial planner AMP Ltd (AX:AMP) - all of which the Royal Commission has called to appear - on top of the collective A$26 billion in market capitalisation they have lost since hearings began in February.
When government economic adviser the Productivity Commission asked pension funds their returns by investment class earlier this year, just five of 108 answered the question in full, the commission said.
Spokespeople for AMP, No. 1 lender Commonwealth Bank of Australia (AX:CBA), and pension fund giant Mercer Super Trust told Reuters the Royal Commission had asked for information about their pension products without providing details.
Representatives for No. 2 lender Westpac Banking Corp (AX:WBC), third-ranking Australia and New Zealand Banking Group Ltd (AX:ANZ) and National Australia Bank Ltd (AX:NAB) declined comment.
All the banks but Westpac are quitting, or have quit, the pension fund business. Westpac cut its fees last month.
MONEY FOR NOTHING
Australia is the 14th biggest economy but has the third-largest pension pool in the world, according to OECD data, bigger than Canada or any country in mainland Europe. That's because of laws requiring employers to pay nearly a tenth of every worker's wages into a fund the person can't access until, in most cases, they reach 67 years of age.
But without reliable and directly comparable public data, Australia's 12 million workers often leave their employer to choose between a cheaper industry fund and a higher fee-charging private fund.
While industry funds face criticism for having union representatives without investment experience on their boards, most data suggests the privately run retail funds fare worse when taking into account the fees they charge.
Among the worst performers, retail fund MLC Fund MySuper, owned by National Australia Bank (AX:NAB), returned 4.5 percent a year, after fees, for the past three years, four percentage points below the top ranking fund, according to researcher Rainmaker Group, and two percentage points below the average. The data showed the MLC fund returned 5.5 percent in the latest one-year period, 5 percentage points less than the top performer. MLC declined to comment on its performance and fees.
The MLC fund charges each of its almost 80,000 members A$1,247 per year, one of the highest fees in the industry, according to the Australian Prudential (LON:PRU) Regulation Authority.
The highest fee-charging fund, the Perpetual Super Wrap, charges its customers an average of A$9,771 a year. Not including fee income, its investment return ranked 53rd out of 161 Australian pension funds in fiscal 2017, according to APRA figures.
A Perpetual spokeswoman said the fees were "negotiated and agreed between the adviser and the client (and) the amount therefore is individual to each client based on their needs, and the services and advice agreed with their adviser".
Perpetual's clients were "established wealthy, business owners and professionals ... with high balances and often complex needs" and the fees included "administration and advice fees across clients with varying needs, objectives, preferences and balances," she added.
Jeff Bresnahan, chairman at research house SuperRatings, said disclosure on pension fund fees and performance was now the best it had been and predicted up to a third of funds will close in the next few years as customers switch to better performing rivals.
"Funds that are not engaging and are not providing value to members are losing members because of it," he said.
"That would point to a slow and steady empowerment of consumers and that will continue."