Time to read : 6 Minutes
When you walk into any given retailer, prices are clearly displayed… when you order a coffee or smoothie, you know how much it’ll cost… but how do you know what you’re paying for someone to run your super?
Who is getting what slice of your retirement savings?
And – the big question – is it worth it?
Most Australians don’t know, says troubling new research by Vanguard Investments Australia.
Two-in-three Aussies aren’t aware that super funds charge multiple fees (61%).
And… one-third have never reviewed or compared their super fund fees (34%).
Well, here are all the people ‘clipping’ your retirement ticket.
And when I say clipping, it’s more like docking. If you’re paying fees at the higher end, and are a typical full-time worker, the Productivity Commission says that by retirement you could have lost around 12% of your super – $100,000. (The modelling assumes a starting salary of $50,000 at age 21 and a retirement age of 67.)
How your super dollars are being drained
You’re being charged far more than just one fee:
administration fees
investment fees
transaction fees
insurance premiums
activity fees
performance fees.
These are all likely coming out of your super balance.
In all, there are up to six fee types but Vanguard’s research found only 1% of Australians are aware of it.
Instead, people commonly identify administration fees as the only fee being charged (74%), followed by insurance premiums (40%), and then investment and transaction fees (both 25%).
It’s a huge concern when we collectively pay over $32billion dollars in fees to super funds in 2023, says research by Rainmaker.
So here’s what you are probably forking out.
Administration and investment fees
The problem is that extra administration fees rarely correlate with extra service, and higher investment fees in no way guarantee you higher returns.
So, I asked SuperRatings to break down the average admin and investment costs for Balanced super funds, which are those with 60-76% invested in growth assets. The ratings house also identified the highest and lowest ends of the spectrum.
Below are the fees for a $50,000 super balance.
What super funds charge in administration and investment fees
| Administration Fee ($) | Administration Fee (%) | Investment Fees & Transaction Costs | Total cost for a $50,000 balance |
Average | $71.65 | 0.22% | 0.59% | $480 |
Median | $62.40 | 0.20% | 0.59% | $457 |
Range | $0-$710 | 0%-0.68% | 0%-1.33% | $142-$1,210 |
Source: SuperRatings as at September 30, 2024. Based on Balanced (60-76) options tracked by SuperRatings. Fee components are rounded to 2 decimal points and cost for a $50k balance is rounded to the nearest whole dollar.
You can see that the average annual cost of the explicit admin fee, then percentage-based admin fee and then the percentage-based investment fee (and transaction costs), is $480.
But it can go as high as $1,210. And remember, that’s coming out of your fund each and every year.
SuperRatings insights manager Joshua Lowen says: “Funds don’t explicitly link fees to extra services, outside of advice-specific fees and insurance premiums.”
The data house says that where administration fees are higher than peers, some of the benefits funds may be providing in return for these are:
Improved digital capabilities – for example, online portals, mobile apps and chat services.
Outbound calling to members.
Specialised service teams for members and employers.
Faster transaction processing.
Note that – crazily and confusingly – there’s no requirement to show you the total cost of the above in one clear number.
On top of the investment fees listed in the table, there might also be performance fees. These are additional percentage-based charges, if your investment returns are above an agreed level.
They are mostly calculated as a percentage of the investment return over the target, so at least for these you should be getting ‘bang for your buck’.
We will get into how you can tell what you are personally paying overall shortly, but if it is above the industry norm, are you getting value for it?
Insurance premiums
The other large component of your super fees is insurance.
Life insurance in super can be good value for some Aussies who don’t need specific coverage, because it is supplied by the insurer to the super fund to cover a large group of people.
You also usually skip the need to tell the insurer about specific, pre-existing medical conditions.
Be aware: there are pros and cons to not revealing any conditions, as Compare Club’s life insurance specialist Matt Lang explains.
When doing it this way, insurance inside super can be cheaper than insurance bought outside of it… but the premiums still erode your super fund.
The government’s MoneySmart website explains: “Insurance will not be provided if you're a new super fund member aged under 25, or your account balance is under $6,000 unless you:
contact your fund to request insurance through your super or
work in a dangerous job and your fund chooses to give you automatic cover – you can cancel this cover if you don't want it.
For other super fund members who meet eligibility, you will typically opt in to a default level of life and total and permanent disability insurance, and perhaps some level of income protection insurance.
So how can you tell – overall – how much you are paying for all this out of your fund?
What you pay, MySuper and Your Super
Your fund statement, or super fund portal, is the key. This will have an historic listing of your fees and insurance premiums each period.
You may well need to tally this up to see the overall cost. That’s a pain but it’s not difficult.
The cost is also a little easier to predict if you are in what is called a MySuper or simple superannuation product.
Note: these have stricter rules for disclosure documents – the fund must also have a ‘super’ dashboard’ to show you more quickly.
Then there is a government comparison tool that will reveal if what you are paying is excessive versus alternative super options… but Vanguard’s research shows just 19% of Australians are aware of it.
The ATO’s Your Super comparison tool displays the top super funds against others you can choose, side-by-side. You can see if they also make the grade on performance, which is a really important comparison as it’s listed after the impact of fees.
Tip: if you access Your Super through your MyGov account, it will also show your own super fund’s details.
Bottom line
Vanguard’s research found that after performance (31%), fees and charges are the primary reason people switch super funds (26%).
This is because what you pay in fees over a lifetime of super will make an enormous difference to how quickly your super balance grows.
Are yours worth it? Because a comfortable retirement may depend on it.
Go deeper:
Financial disclaimer
The information contained on this web page is provided by Compare Club Australia Pty Ltd, authorised representative of Alternative Media AFSL number 486326. It is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should consider whether the advice is right for you and refer to the Product Disclosure Statement before making a decision in relation to a financial product.
