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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 the fees you’re paying and why.
As the Productivity Commission has pointed out, fees are “the biggest drain on net returns” for super fund members and can have a “substantial impact on members … by the time they reach retirement.”
It’s worth pointing out here that fees should never be looked at in isolation, as the most important measure of your fund’s performance in the long run is net returns after all fees and taxes. A higher-than-average fee may be worth paying for superior returns. That said, as the Productivity Commission points out, fees matter.
The actual fees you pay will depend on the type of super fund you are a member of and which investment option you’ve selected. But if you want to wise up about the super fees you’re paying, check out our 10-point guide below.
Why fees matter to your super balance
How much you pay each year in fees on your super savings will have a big impact on the amount you have to spend in retirement.
The Productivity Commission has estimated an “increase in fees of just 0.5% can cost a typical full-time worker about 12% of their balance (or $100,000) by the time they reach retirement.”
With that in mind, it’s worth regularly checking what fees you’re paying to ensure you’re not paying too much, as many super funds compete to offer the lowest fees. The superannuation regulator, the Australian Prudential Regulation Authority (APRA), provides statistics on the median fees charged for both MySuper and Choice products offered by super funds. In December 2021, it reported Choice products had higher total administration fees, with the median administration fee being $218 per year (for a $50,000 member balance). This was 30% higher than the median fee of $168 per year for a MySuper product.
If you want to learn more about the fees your super fund is charging, a good place to start is to check your fund’s website or its current product disclosure statement (PDS). Armed with this information, you can compare the fees you pay with other super funds.
- APRA’s annual ‘heatmaps’ allow you to see at a glance if your fund’s fees are higher than, or competitive with, other funds’ fees. At present, these heatmaps compare MySuper products and some Choice products.
- The Australian Taxation Office (ATO) YourSuper comparison tool will also allow you to compare the fees you pay with other funds.
10 super fund fees and charges you need to understand
1. Administration fee
This account management fee represents the cost to your super fund of looking after the various administrative tasks relating to your super account, such as sending out account statements, providing online services and recording your account transactions and contributions.
Under 2017 rules from ASIC, super funds must report their administration fees under the headings:
- Administration fees – account keeping fee
- Administration fee – trustee operating cost
Super funds usually charge their administration fees as a fixed fee, percentage of your account balance, or a mix of the two.
2. Investment fee and indirect cost ratio (IDR)
These fees represent the costs involved in professionally managing the investments your super fund makes on your behalf. The investment fee is usually a percentage, while the indirect cost ratio (IDR) varies depending on the particular investment option.
The IDR includes costs paid by the super fund to external investment managers. Each investment option within a super fund has a different IDR, as the costs involved in investing in different asset classes vary. For example, the charges for 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.
Some funds also include the following costs in their investment fees:
- Performance fee: This fee may be paid to an investment manager used by the super fund to manage the fund’s investments. It’s payable if the investment manager exceeds its performance target or benchmark.
- Buy/sell spread: This covers the transaction costs the super fund pays when it buys and sells investment assets. Learn about buy/sell spread costs.
- Brokerage: These fees relate to the cost of buying and selling shares through a broker.
- Settlement costs: This includes fees charged by the custodians holding the super fund’s assets.
3. Withdrawal or exit fee
Some super funds charge you a withdrawal fee when you withdraw your full account balance at retirement.
These withdrawal fees are deducted directly from your account to recover the costs of disposing of all, or part of, the investment assets that represent your interests in the super fund, plus any relevant administrative costs.
If you decide you want to switch all or part of your super account to another super fund, your existing fund is not permitted to charge you an exit fee. These were banned from July 2019 with the Protecting Your Super (PYS) legislation.
4. Financial advice fee
If your super fund charges this fee, it’s usually deducted directly from your super account and is to pay for personal financial advice you have sought from a licensed financial adviser – either over the phone or in person – about your super and financial position.
5. 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.
6. Establishment fee
Some super funds charge this fee to cover the administrative cost of setting up your account in the super fund.
7. 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.
8. Contributions splitting fee
If you decide to take advantage of the potential tax advantages of splitting your annual concessional (before-tax) super contributions with your spouse, the super fund may charge you a fee to move some of your super contributions into your spouse’s account.
9. Family Law Act information request
This fee is charged if you request information about a super account under the Family Law Act.
Many funds also charge a family law splitting fee. This applies if, after a separation and Family Law Court order to split your super with your former spouse, your super fund is required to split your super account and move the money to your former spouse’s super account.
10. Insurance premiums
When you join a super fund, you usually receive default insurance protection for death and total and permanent disability (TPD). Some funds also provide income protection insurance.
You are required to pay for this cover, so the premiums are charged against your super account balance on a regular basis (often monthly).
The premium cost varies depending on the type of super fund and level of insurance protection you hold (death only, death and TPD, income protection or all three types of insurance cover).