To create a positive pathway to retirement, understanding the puzzling superannuation fees that can strip away your super savings can make a measurable difference to your super balance.
When the 2018 Productivity Commission report explored superannuation efficiency and competitiveness, looking into fees that lurk beneath the surface of superannuation funds was part of the process.
Australians who switch from the worst of funds to the best of funds could pocket an additional $660,000 in retirement. This is a valuable reason to take a closer look at those puzzling superannuation fees that could be reducing your super balance.
Many Australian workers are unaware of the extent of fees being paid to their super fund – or the reasons why the funds are being charged in the first place. But it’s important to understand them, and consider if it’s worth shopping around for a more competitive fund.
1. Administration fees
Administration fees are, as the name suggests, those fees that cover the administration work that goes on behind the scenes of your superannuation fund.
These fees typically cover things such as IT and customer service support that enable you to access your fund provider’s website and online portal, as well as the software your superannuation fund uses to monitor your contributions and report the performance of your super balance.
Depending on your super fund, this fee may be a fixed dollar amount, or a percentage of your superannuation balance (or a combination of both). Understanding what this figure relates to enables you to compare fees from different fund providers to decide if switching funds could save you money.
2. Management expense ratio (MER)
If the admin fee component makes sense so far, this is where it might start to get confusing.
The management expense ratio (MER) discloses the fee that is paid, internally, within a mutual fund. This could mean the premixed investment option with an industry fund, or the internal fees of an exchanged traded funds or managed fund that your retail superannuation fund may invest in.
But this fee won’t be debited from your cash statement or superannuation fund member statements. Instead, it is effectively debited from the associated income distribution before it lands in your super account.
Be aware that this fee does not cover transaction fees and internal brokerage within that managed fund, exchange traded fund or premixed investment option.
3. Custodian fees
Not every superannuation fund charges custodian fees, but it’s worth checking yours to see if it does.
A custodian is a special company – overseen by a separate board of directors – that owns the superannuation assets on behalf of the superannuation fund’s members.
4. Indirect cost ratio
This fee is often used instead of the MER.
The indirect cost ratio includes more fees in its calculation than the MER.
The fee covers indirect costs and can also include performance fees (a bonus that is paid to the fund manager after meeting a performance goal). It also covers things such as investment-related auditing, accounting, compliance, legal, and operational costs.
5. Transaction fees
Another fee? Don’t panic. Not every super fund charges this but if yours does, crunch the numbers to see what difference it might make to your balance.
Although most industry funds allow you to make one or two ‘switches’ between any of their investment options within a year, switches that are made above this permissible level may attract fees per switch.
Plus, if you have either a retail or self-managed superannuation fund that charges a brokerage or transaction fee each time you buy or sell a managed fund or direct shareholding, it can chip away at your investment.
6. Buy/sell spreads
Changing your investment options doesn’t always attract a fee, but the alternative is a ‘spread’ if you are buying or selling in or out of that investment option.
To help you understand, imagine you move your super money into a ‘balanced fund’ option and are effectively buying each unit for $1.02. Then, if you decide to shift money out of this option, you may be selling each unit for $0.98. The difference is known as the buy/sell spread.
7. Adviser fees
For super fund members who can access a financial adviser as part of their superannuation, you might be hit with a fee for that access to financial advice – whether you’ve utilised it or not.
Depending on your fund, this fee may be a fixed dollar cost per financial year, or a percentage amount.
Choosing the best superannuation fund is about more than fees
There are more puzzling superannuation fees within many funds, but these seven are the most common – and it’s worth having a better understanding of how they work.
Of course, choosing the right super fund to manage your retirement savings is about more than just fees – so make sure you compare all the things that matter to you most if you’re comparing funds. When it comes to return on investment, the difference it makes to your superannuation balance may be well worth your research time.
Have you been stung by superannuation fees you didn’t understand? How much did they cost you? Why not share your thoughts in the comments section below?
Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.