Hands up if you know what fees your super fund charges? No idea? You’re not alone.
Most super fund members are aware that being in a fund with superior investment performance will mean a bigger retirement balance. One of the key findings of the Productivity Commission report on super was the negative effect being in a dud fund can have on your retirement balance.
The Productivity Commission found:
“…being defaulted into a single top-performing MySuper product would lift the retirement balance of the median 55 year old by up to $61,000 when they retire, compared to being defaulted into two underperforming products. For a new workforce entrant today, the gain would amount to $407,000 by the time they retire in 2064.”
What’s not so well-known is the impact of fees.
Your super fund might have above average investment returns, but if it charges above average fees you could retire with less money than someone in a fund with similar returns but lower fees.
Take this example:
Harry, 30, earns $80,000 a year and has a super balance of $50,000. His current fund charges 2% of his account balance in fees and charges. If he retires at 65, his balance will be $479,953 (assuming average annual returns of 7%). If he were to switch to a fund offering similar performance but fees of 1%, his retirement balance would be $600,205. That’s a difference of $120,252! While a 1% difference in fees may not seem like much, it certainly adds up over time.
Even small differences of 0.2% or 0.5% may feel trivial now, but the effect on your retirement could be far from trivial.
For example, if your super account balance is $200,000 and your super fund charges you $2,000 a year, that works out to be a 1% fee on your super balance. If you super fund charges 1.5%, then the super fees work out to be $3,000 a year. The extra $1,000 a year in fees can add up. If your super account balance is $400,000, then the difference in costs between the two funds is $2,000 a year – nearly $40 extra a week.
Wouldn’t it be great if you could see the real impact of fees on your super account? With this in mind, we have created the SuperGuide Super Fees and Return Calculator that enables you to project a future super balance based on your current super balance, salary, age and desired retirement age.
You can then easily see the difference that fees and average rates of return can make on your projected super balance on retirement. The Fees and Average rate of return have sliders so you easily change their value in 0.1% increments.
Super fees and returns calculator
For more information on super fund fees, see the following SuperGuide articles:
- Super and pension funds with the lowest fees
- 10 key super fund fees: What are they and why am I paying them?
- Super funds with the lowest fees for life and TPD insurance
- Super funds with the lowest fees for income protection insurance
- What are average super fund fees?
- What are typical fees and costs for running an SMSF?
- Super fund fees: Do lower fees mean better net returns?
Learn more about super fund performance in the following SuperGuide articles:
- What are lifecycle super funds, and how do they perform?
- Monthly super fund performance Reckoner: Monthly returns for 5 investment categories
- Super fund performance: Monthly returns to February 2020
- Super fund performance over 27 calendar years (to December 2019)
- Annual super fund performance Reckoner: Annual returns for 5 investment categories
- Super fund performance over 27 financial years (to June 2019)
- Superannuation funds: Does size really matter?
- Fund Performance: SMSFs vs APRA super funds