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Following recommendations from both the banking royal commission and the Productivity Commission, fees charged by superannuation funds have been in the spotlight.
The Productivity Commission (PC) review of super found that “(member) balances are eroded by fees and insurance”. It also claimed that fees were “the biggest drain on net returns”.
In response, the government announced plans in its 2020 Budget to introduce a new online comparison tool called YourSuper. Starting on 1 July 2021 and updated quarterly, super funds will be ranked by fees and investment returns.
It’s critically important that the fees you are paying are good value because what may initially appear to be a small percentage can grow to make a huge difference over time due to the magic of compounding interest.
The PC estimated an increase of just 0.5% a year in fees would reduce the retirement balance of a typical worker (starting work today) by a projected 12% (or $100,000).
The PC also reported that “Higher fees are clearly associated with lower net returns over the long term”, although SuperGuide has also published analysis from SuperRatings that suggests the full story is more complicated than that. Read SuperGuide article Super fund fees: Do lower fees mean better net returns? to learn more.
SuperRatings has also kindly provided us with the following list of the ten super and pension funds with the lowest fees as at 31 December 2020.
10 cheapest super funds (Balanced investment option)
The crown this year has passed to HESTA Indexed Balanced Growth option, a new entrant into the top 10. This pushed last year’s winner and runner up – Hostplus and Rest – into second and third place.
SuperRatings Market Insights Analyst, Joshua Lowen said fees decreased on average over the past year with one potential driver being more funds introducing passively managed indexed options to target fee conscious members. “HESTA made significant changes to its investment menu last year, including the introduction of the Indexed Balanced Option,” he said.
However, Lowen points out that most super fund members are invested in their fund’s default MySuper option (not their indexed options). These tend to be actively, rather than passively managed.
While low fees grab the headlines, it’s worth remembering that it is net investment returns after fees that matters most in the long term.
The entry of HESTA and Colonial First State FirstChoice into the top 10 pushed heavyweights Australian Super and Sunsuper below the line.
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The fees for the super funds listed below are based on a $50,000 balance.
| Rank | Fund name | Investment option | Fund type | Fees | Fees as a percentage of balance |
|---|---|---|---|---|---|
| 1 | HESTA | Indexed Balanced Growth | Industry | $105 | 0.21% |
| 2 | Hostplus | Indexed Balanced | Industry | $108 | 0.22% |
| 3 | REST | Rest – Balanced Indexed | Industry | $138 | 0.28% |
| 4 | ClearView WealthFoundations | IPS Index Base 70 | Retail | $155 | 0.31% |
| 5 | Media Super | Indexed Balanced | Industry | $160 | 0.32% |
| 6 | NGS Super | Indexed Growth | Industry | $160 | 0.32% |
| 7 | Energy Super | Indexed Balanced | Industry | $172 | 0.34% |
| 8 | Colonial First State FirstChoice | CFS Wsale Index Balanced | Retail | $175 | 0.35% |
| 9 | AvSuper Fund | Diversified Index | Industry | $185 | 0.37% |
| 10 | Vision Super | Sustainable Balanced | Industry | $208 | 0.42% |
Source: SuperRatings. The funds above have the lowest fees based on Balanced options (60% to 76% growth assets) for public and limited public offer funds only as at 31 December 2020. Fees include percentage-based administration fees, member fees, investment management fees (including performance-based fees), indirect cost ratios and taxes, but exclude any applicable employer size rebates.
10 cheapest pension funds (balanced investment option)
REST rose to the top the list for the lowest fees in the Pension category, after coming in at number three the previous year, while Hostplus held onto second place.
Once again, as in the super fund category above, HESTA and CFS-FC moved into the top 10 with indexed options. LUCRF was another new entrant with an indexed option, while Australian Super, Sunsuper and UniSuper dropped out of the top 10.
Fees continued to drop across the board, with REST and Hostplus cutting fees from 0.21% of members’ account balance to 0.15%.
Note that the fees listed below are based on a $250,000 balance to reflect the fact that those drawing a pension will generally have had longer to accumulate a larger balance. The fees for the super funds above are based on a $50,000 balance.
| Rank | Fund name | Investment option | Fund type | Fees | Fees as a percentage of balance |
|---|---|---|---|---|---|
| 1 | REST | Balanced Indexed | Industry | $378 | 0.15% |
| 2 | Hostplus | Indexed Balanced | Industry | $384 | 0.15% |
| 3 | Media Super | Indexed Balanced | Industry | $540 | 0.22% |
| 4 | NGS Super | Indexed Growth | Industry | $540 | 0.22% |
| 5 | AvSuper Fund | Diversified Index | Industry | $635 | 0.25% |
| 6 | HESTA | Indexed Balanced Growth | Industry | $666 | 0.27% |
| 7 | LUCRF | Indexed Balanced | Industry | $678 | 0.27% |
| 8 | Energy Super | Income Stream – Indexed Balanced | Industry | $752 | 0.30% |
| 9 | ClearView WealthFoundations | IPS Index Base 70 | Retail | $775 | 0.31% |
| 10 | Colonial First State FirstChoice | CFS Wsale Index Balanced | Retail | $800 | 0.32% |
Source: SuperRatings. The funds above have the lowest fees based on balanced investment options (60% to 76% growth assets) for public and limited public offer funds only as at 31 December 202020. Fees include percentage-based administration fees, member fees, investment management fees (including performance-based fees), indirect cost ratios and taxes, but exclude any applicable employer size rebates.
It’s important not to solely focus on fees. Performance is also critical to growing your super balance.
