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.
Tips
If you have difficulty finding the fee percentage your super fund charges you, your super fund will often specify the dollar amount of fees it charges you. You can work out the fee percentage by dividing the dollar amount quoted in fees by your account balance. You can also see the difference additional super contributions could make.
The SuperGuide Super Fees and Returns Calculator also allows you to compare two different fees and average rates of return at the same time. To compare a second fund, click the button next to “Add another fund to compare?”.
When comparing funds and fees, it’s important to compare like with like. The level of fees will depend on the investment options you choose and your account balance, as well as your choice of fund.
Super fees and returns calculator
Note
Results are shown in ‘today’s dollars‘ and are adjusted for inflation in terms of a 2% per year rise in the cost of living, and a 1.2% per year rise additional rise in living standards.
The Superannuation Guarantee is based on 9.5% only, and does not factor in the legislated increases from 1 July 2021.