Uncapped fees could be draining your super balance


Do you have a large super fund balance? If so, good for you, but with that healthy balance comes a warning from experts – beware of uncapped fees.

A recent in-depth analysis of super funds found many Australian superannuation funds do not have a cap of any sort on administration fees. This leaves fund members with large balances vulnerable to excessive costs, many of which should be entirely avoidable.

The Nine Media stable of newspapers (including the Age and Sydney Morning Herald) recently commissioned SuperRatings to conduct a fee analysis. The ratings group audited more than a hundred different super funds, and found that roughly a third had no cap whatsoever.

According to SuperRatings, those at greatest risk from these uncapped fees were those with big super balances. Joshua Lowen, Insights Manager at SuperRatings, said, “For members with higher balances, the impact of fee caps can be significant.”

Mr Lowen conducted the analysis himself. While his revelations were of some concern, he said, fund members should take some time to consider all aspects of their superannuation before ‘jumping ship’.

The anatomy of uncapped fees in superannuation

The term ‘uncapped fees’ is more or less self-explanatory. These fees continue to grow in line with the fund’s balance rather than being limited to a certain level.

In many ways this is not a bad thing, because it reflects a healthy growth of your account funds. Copping an uncapped fee, if it’s relatively small, for big growth is a price many think is well worth paying.

But if we could get the same growth for a smaller cost, would that not be better still?

SuperRatings’ analysis found that 70 per cent of the funds limit or reduce the impact of administration fees on larger balances. But even amongst that group of funds, there were some limitations to keeping fees down.

Mr Lowen found that more than 20 of these funds have caps set so high they were beyond the reach of many members. In such cases, the caps only took effect for accounts with balances of more than $1 million.

Other funds had a far simpler structure. Such cases had administration fees that were charged up to a certain dollar value each year, regardless of account balance.

Between those extremes come the funds that have tiered structures. As the description suggests, these funds have a scale of fees based on your fund’s account balance. Many have an applied percentage fee which is reduced when a balance exceeds a certain size.

A significant majority of the funds with uncapped fees are what’s known as ‘retail’ funds. Essentially these are funds that funnel profits to shareholders.

Working out what’s best for you

Because of the number of different fee structures employed by various funds, working out which fund will produce the best result for you is no easy task. Banks and other lending institutions are now subject to mandatory comparison rate publishing rules, making comparisons easier for borrowers.

Super funds have no such legal requirement. At least, not yet. The Australian Prudential Regulation Authority (APRA) is aiming at legislation compelling funds to better explain how fees are set.

But that appears to be some way off. Until then, making sure funds aren’t going too far with their fees will remain basically the job of fund members.

Do you have a large super fund with uncapped fees? How does it stack up? Let us know via the comments section below.

Also read: Super products ranked the worst of the worst

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.

Written by Andrew Gigacz

Andrew has developed knowledge of the retirement landscape, including retirement income and government entitlements, as well as issues affecting older Australians moving into or living in retirement. He's an accomplished writer with a passion for health and human stories.

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