Q: I have my super with a major financial organisation. I’m wondering, are they a good company to be dealing with? I feel that their fees are a bit high: based on an investment amount of $300,000 the MER amount is $6,600 (2.2%) plus a monthly admin fee of $8.50. What are your thoughts on this matter?
I am not permitted to comment specifically on whether a particular super fund is suitable or not for your personal circumstances, which is why I have removed any reference to the company that runs your super fund. I can however provide some general comments on what makes a good super fund.
The purpose of a superannuation fund is to accumulate wealth for your eventual retirement, which means that you would want your super fund to deliver the best return possible (after fees and taxes) taking into the account the risk that you’re willing to take to get there, and any other particular needs that you may have, such as cost-effective insurance coverage.
Comparing super funds in 8 steps
I explain the main issues you need to consider when comparing super funds in the SuperGuide article Fund choice: Comparing super funds in 8 steps. The two most important criteria when deciding whether a super fund is good enough is the super fund’s investment performance, and the fund’s level of fees.
The level of fees are an important consideration when deciding whether a super fund suits your needs, but the most important measure is your fund’s returns after fees and taxes. If your super fund is delivering higher returns than other super funds, or giving you access to investments that you wouldn’t normally be able to access, then the higher fees that may be charged, may or may not be justified.
The management expense ratio (MER) on your account, based on the details you provided, works out to be around 2.2% of your account balance. In general, a super fund that charges substantially more than 1% in fees is considered a high fee super fund. According to ratings agency, SelectingSuper, if a super fund charges 2% in fees rather than 1% in fees, that 1% difference in fees over 40 years can mean a final retirement balance that is 30% lower, assuming investment returns are the same for both super funds.
Five main types of super funds
Apart from a self-managed super fund (SMSF), you have four types of superannuation funds — industry, retail, corporate or public sector — to choose from, and within these four large fund categories you can choose from 225 super funds (see SuperGuide article Comparing super funds: Who’s who in the super zoo?).
Note: Generally you can only choose between an industry super fund, retail super fund, or an SMSF, unless you’re already a member of a corporate super fund, or an existing member of a public sector super fund.
Based on the level of fees that you are being charged, I assume you’re in a retail super fund. I explain the fees charged for the different types of super funds in the SuperGuide article Comparing super funds: 10 fees and charges you need to know about .
As a reference point, you can refer to the SuperGuide articles below to see what the cheapest super funds charge in fees, and also what the top-performing super funds charge in fees:
- Super fees: Top 10 cheapest funds in Australia
- Super stars! Top 30 super funds over 5 years
- Retirement performers! Top 30 pension funds over 5 years
Fees for older super accounts may include adviser commissions
Sometimes it is difficult to unpack the fees that a super fund charges, especially when you are a member of retail super fund. Due to the history of product distribution relating to retail super funds, if you have been with a retail super fund for a few years, it is highly likely that a portion of your fees is being redirected to a financial adviser who may have initially provided you with advice. Alternatively, you may be in a super fund that invests predominantly in international assets, or emerging markets, or other types of investments that require more investment specialists or more research overheads, which may then justify 2.2% in fees.
If an individual is in a balanced investment option, then I think being charged 2.2%-plus is over the top, and anyone in this position may consider renegotiating the fee with the organisation, or financial adviser. Note that I am not permitted to comment on the merits of any investment decision.
The level of fees is of course only one consideration when deciding the merits, or otherwise, of a super fund. Again, the most important factor is without doubt the after-tax returns that a super fund delivers over time. For more information on the importance of overall investment outcomes, when considering the level of super fees charged, see SuperGuide article Fees: Do cheaper super funds mean bigger retirement balances?
Checking the performance history of your super fund, and comparing this history against comparable super funds may give you some comfort as to the merits of your super fund.
Other useful SuperGuide articles
The following articles also provide some information on this topic:
- Super fees: Top 10 cheapest funds in Australia
- Fund choice: Comparing super funds in 8 steps
- Super for beginners, part 20: Comparing your super fund’s performance
- Super control: How to switch your super account’s investment option
- Investment performance: Assess your super fund in 4 steps
For more specific articles on investment performance see the following links:
- Investment performance: We’re the best super fund. No, we’re the best…
- Mirror, mirror… what super fund is the best-performing fund of all?
- Is my super fund performing?
- Top 10 performing super funds for 2017 calendar year (and previous years)
- Top 10 performing super funds for 2015/2016 financial year, and for past 10 years