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Nobody likes paying fees, particularly when you can’t see what you’re paying for. So when it comes to your super fund, it’s worth learning a bit more about what fees you are paying and why.
Like most things in the super industry, the fees you pay on your member account depend on the type of super fund you are a member of, and how you decide to invest your super money within that fund.
Fees are an area where super funds compete against each other, so it’s important to regularly review what you are paying to ensure you’re not paying too much. For more information on the fees your super fund charges, check your super fund’s website or member product disclosure statement (PDS). (For a comparison of some of the cheaper super funds in the market see SuperGuide article Super and pension funds with the lowest fees.)
Important note: Certain super fund charges are itemised separately on your member account statement (for example, the administration fee and insurance premiums), but others are bundled together and deducted from the investment return or crediting rate before it is added to your super account.
These embedded fees are generally not individually disclosed, but are charged as part of the overall cost of investing your super savings on your behalf.
Set out below are 10 fees and charges that your super fund may deduct from your super account, either directly or indirectly. The first 5 fees listed below are the most common fees charged by super funds. Note that insurance premiums are also deducted from most super fund accounts (see later in the article for more information).
Member or account management fee
The member or account management fee represents the cost to your super fund of looking after the administrative tasks relating to your super account, such as sending account statements and recording your account transactions and contributions.
Industry super funds generally charge their administration or account fees on a flat X dollar per week basis, regardless of your account balance. Other types of super funds often calculate this fee as a percentage of your total account balance.
The investment fee represents the costs involved in professionally managing the investments your super fund makes on your behalf; and it is usually referred to as the Management Expense Ratio (MER). The MER will include fees paid by the super fund to a range of investment service providers such as external and internal investment managers, custodians and asset consultants, together with property management-related expenses and bank charges.
Each investment option within a super fund has a different MER, as the costs involved in investing in different asset classes vary. For example, the MER of an international share option will be higher than a cash investment option, as the international share option involves paying fees to professional share managers, together with transaction costs such as brokerage and tax.
The MER may also include costs such as the:
- Operational risk financial reserve: APRA requires super funds to maintain this financial reserve to protect members’ benefits against the impact of operational risk events such as fraud, or errors in setting the fund’s crediting rate. The reserve is a small percentage of the total money held by the super fund and is built up by holding back a tiny amount of the crediting rate applied to fund members’ accounts each year.
- Performance fee: These fees are charged by some investment managers used by the super fund to manage the fund’s investments. This fee is payable if the investment manager exceeds the performance target or benchmark set for it by the super fund.
- Buy/sell spread: This fee is to cover the transaction costs the super fund pays when it buys and sells investment assets. For more information about buy/sell spread fees, see SuperGuide article Super fees: What are buy/sell spread costs?.
Generally, super funds deduct investment fees before the return is allocated to your account balance, rather than charging the costs as separate fees. However, the total MER percentage and dollar amount are calculated annually and should be listed on your member statement.
Note: If you invest in a self-managed or direct investment option within an industry fund, the investment fees are normally directly deducted from your account. These charges can include an administration fee for your investments, an asset-based fee (calculated using a percentage of your account balance), brokerage charges for shares and ETF investments, and management fees for custody and investment manager services.
Withdrawal or exit fee
Most super funds will charge a withdrawal fee if you take money out of your super account, for example when you shift your money to another super fund, or when you withdraw your full account balance at retirement.
These exit/withdrawal fees are deducted directly from your account to recover the costs of disposing of all, or part of, a fund member’s interests in the super fund.
Note: The Productivity Commission has recommended that exit or withdrawal fees for all new fund members should be at cost recovery level only (at the time of writing, only draft recommendation).
Financial advice fee
A financial advice fee is usually deducted directly from your super account, if you seek advice about investing in a specific investment option or superannuation product from a licensed financial adviser, either over-the-phone or in person.
If you have been a member of a super fund for a few years, and you have received personal advice about your super or other investments, your financial planner may still receive a commission for the super fund or investment options you chose based on his or her recommendations. The fee is often negotiable with the adviser and is usually a percentage of the amount you invested or switched on the adviser’s recommendation. (Since 1 July 2013, commissions are not payable on new investments and super products – see SuperGuide article Financial advice: What are the risks and benefits?.)
Investment switching fee
If you switch between the various investment options offered by your super fund, you may be required to pay a fee. Some super funds offer free switching, while others offer one free switch each year and then charge a fee for any subsequent changes (see SuperGuide article Super investing: How to change your investment option).
What other super fund fees could I be paying?
Aside from the common fees outlined above, some super funds will charge members a fee if they request specific services, such as:
- Establishment fee: This fee covers the administrative cost of setting up your account in the super fund.
- Expense recovery fee: If the super fund is required to pay expenses on your behalf as a member, your super account may be charged a fee to help recover the amount.
- Contributions splitting fee: If you decide to take advantage of the potential tax advantages of splitting your annual concessional (before-tax) super contribution with your spouse, the super fund may charge you a fee to move some of your super contributions into your spouse’s account.
- Family Law Act information request: This fee is charged if you request information about a super account under the Family Law Act.
- Family Law splitting fee: After a separation and Family Law Court order to split your super with your former spouse, your super fund will charge a fee for splitting your super and moving the money to your former spouse’s super account.
For more information on contributions splitting, or benefit splitting when divorcing, see SuperGuide articles:
Insurance premiums: the cost of protection
When you join a super fund, you usually receive default insurance protection for death and total & permanent disability (TPD). Some funds also offer income protection cover. The premiums for this insurance protection are charged against your super account balance on a regular basis (often monthly).
The premium cost will vary depending on the type of super fund and level of insurance protection you hold (for example, death only, death and TPD, or all three types of insurance cover). The premium cost is also likely to increase as you get older.
For more information on insurance and your super, see SuperGuide articles:
- Life insurance through super: A definitive guide
- Super funds with the lowest fees for life and TPD insurance
- Super funds with the lowest fees for income protection insurance
For more information about super funds and the fees and other charges on super accounts, see the following SuperGuide articles: