Super fees can be super high

A failure to understand superannuation rules may be costing you thousands.

Super fees can be super high

MySuper is supposed to be the easy, low-fee option for Australians; however, a failure to understand the rules may be costing you $100s in fees.

For those who fail to nominate a super fund of their choosing, MySuper is the default fund into which your employer will pay your superannuation guarantee. However, any funds accumulated prior to the commencement date of MySuper (1 January 2014) may still be sitting in a high-fee fund chosen by your employer. This is because accumulated funds do not need to be switched to MySuper funds until 1 July 2017.

While many people may believe that money sitting in a fund only attracts a small fee if no advice is given, Fairfax’s John Collett reports that this is not correct. Commissions for financial advice may still be charged even if no advice is given, and this is where people are losing out.

If your super has been paid into an industry super fund by default, then there is less to worry about, with industry super funds charging no commissions. But if it has been paid into a retail fund, such as one operated by the big four banks, then your balance could be dwindling away unnecessarily.

While fees are not the whole story, as funds with higher fees can pay higher returns, not understanding the effect of such fees could well be detrimental over the life of a super fund.

All funds charge an administration fee, which should be no more than a few dollars each week. On top of this some funds will charge an investment management fee (or commission), which is a percentage of the account balance.  This is the total fee paid.

According to SuperRatings head of research, Kirby Rappell, any total fee below one per cent is very competitive, with MySuper Funds typically charging between 0.8 and 1.2 per cent. Even if you have chosen MySuper as your default fund, you still need to be on top of the commission you are being charged, MySuper funds may be limited in the types of fees they can charge, but they are not in the amount they charge and there is no cap or limit on fees.

AustralianSuper research shows that paying just an extra one per cent in total fees over your working life could result in a super fund balance having $100,000 less by retirement.

And its not just high-fee funds that can damage your retirement nest egg. Holding several super funds, even if the fees are low, could see your savings quickly eroded. AustralianSuper estimates that 2.5 Australians hold more than one super fund and that this can amount to $5550 less at retirement, even if you hold just one extra fund.

Read more at TheAge.com.au 

Opinion: Mixed messages on super

It doesn’t matter which simplified funds, such as MySuper, are brought onto the market, the fact remains that super is just too confusing for most Australians to understand.

Back in 2012, we were told that MySuper would remove the stress of choosing a super fund for those who don’t have access to expensive financial advice, or whose super balances perhaps don’t warrant paying hundreds of dollars in fees. However, the staggered roll-out of legislation means that many hard-working Australians who assume that their super is working just as hard may be caught out come retirement. Who would know that super accumulated in a default fund prior to 1 January 2014 doesn’t need to be moved to MySuper until 1 July 2017? Not your average worker I’m betting.

And if your super balance isn’t that high, surely paying fees of one or two per cent isn’t going to make much difference? If this is what you think then you’re very wrong. The smaller the balance the more vigilant you have to be with minimising the fees you pay.

Let’s not forget ‘lost super’. While we’re told to track down all our super funds and accumulate them into one, this is easier said than done. The reason that many super funds become lost is due to funds not being able to contact members, which is largely due to the funds holding the wrong details for that member. So when you try to search the ATO ‘Find my super’ database, a negative response is often given because the details you are using are different to the ones held by a fund.

Despite what we’re told, nothing is simple in the world of superannuation, yet all access to information and low-cost or free advice is being stopped. The closure of the National Information Centre for Retirement Investments (NICRI) earlier this year, coupled with the confusion over the Future of Financial Advice (FoFA) reforms have left those with limited funds, who are approaching or in retirement, nowhere to turn.

Governments can call for submissions for white papers until the cows come home. The Productivity Commission can deliberate and produce recommendations until its hearts is content. But until someone fully understands the confusion and fear faced by those trying to ensure that they maximise their superannuation, then the average Australian retiree will be no better off.

Is it time to tackle superannuation in a comprehensive manner? Or do you think the system we have works well enough if people try better to understand it? Should superannuation funds be more accountable for the fees they charge?





    COMMENTS

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    22nd Jun 2015
    10:29am
    All superannuation providers periodically issue statements with your fund fees - both admin and investment. Have a look at these and compare them to other funds' which can be found in Money Magazine or on the Internet. They do vary and some considerably, and some financial management firms even refund all fees and do not charge commission. So do your homework, ask questions, and change providers or advisers if you are not happy with current conditions. You're the customer.
    lillybet
    22nd Jun 2015
    11:32am
    My husband is a nurse. He does some 4 & 5 month contracts in WA. Each time he has done so, he has completed the WA Health superannuation form stating he wishes to use his own super fund, gives the details of the fund, the member no., the letter of compliance, and also attach a separate piece of paper to the front of his super choice form/employment documents stating 'please do NOT open a new GESB super a/c, please use my existing super account...details.....etc. BUT STILL each and every time WA Health open a new super a/c with GESB. In fact, this contract he has had to supply the super choice forms 4 times! - WA Health keep losing them!! Every time we struggle to get the $$'s transferred back across to First State Super. In fact, as I type we are still trying to locate some super funds which have gone awol somewhere between closing GESB, WA Health still sending $ to GESB despite being advised of closure and rollover of funds to First State Super, and then GESB rejecting funds but somehow funds not able to be located via WA Health!
    Now my husband is ONE person. WA Health administer many thousands of nurses etc - in remote WA there are thousands of contract workers coming & going, so let's multiply this problem which apparently seems to happen to most people moving in and out of this state in this industry, and THERE is where the problem for WA lies.
    I've heard all the publicity recently on TV about how much super is sitting unclaimed in WA......no surprise at all. Why the WA hospitals cannot be broken up into areas for administration/payroll, or even handle their own as it occurs in country Vic for example, is a mystery to me!
    Brian@Brompton
    22nd Jun 2015
    11:46am
    YLC is proving its worth in my eyes - & I'll bet I'm not alone - by focusing our attention on the broad question of Retirement Income [superann and pension support] and promoting the need for equity and simplicity. Thanks & congrats. It is fine to direct people to further sources of info [which, with respect, Fast Eddie], I'd see as Stage Two stuff for the enthusiasts. That advice has been given so often without shedding light for the majority.
    Why not simply alert people to the First Thing to Know: the different results obtained over say past five years by the Industry Funds [mutualised, not for profit] and the [more aggressively-promoted but higher-fee and lower-return] Retail Commercial Funds, mostly owned by the big banks and other big finance players.
    Most of us minnows have to think first about the cost-returns ratio. Once on top of that factor those who want to finesse their choice further can compare other features.
    Speaking for my self and my wife, we've used various funds from both sectors over many years and after being dudded too often by poorer returns, higher fees and disatrous back-office work we'll not move from the Industry Funds sector. Brian@Brompton
    rratrr
    22nd Jun 2015
    11:49am
    After the story about IOOF in Saturdays Herald a Royal Commission is the only thing that can sort this out for every hard working Australian. The groundswell is growing over the past and the future of every Australian who has relied or will rely on their Super. The only thing stopping a Royal Commission happening is the Banks and the Government. Why?
    KSS
    22nd Jun 2015
    12:24pm
    et again an attempt to blame someone else other than the account holder for not knowing where their money is and how much they are paying in fees. To read these recurring articles on this site, one would be forgiven for thinking that anyone old enough to be looking at this site must be illiterate, innumerate and too utterly stupid to understand anything. As Fast Eddie said, the super funds send out at least two statements a year. These statements show the opening balance for the period, all payments received and the closing balances. They also show the fees charged, the insurance premiums paid and the amounts you would get should you need to claim on the insurances (life, TPD, death etc). Exactly what more do you expect?

    As for super going missing; there are constant reminders on TV and through other media. If people cannot be bothered to spend a few minutes on-line checking, they only have themselves to blame. It is their responsibility to make sure they keep the fund appraised of changes to addresses, employers, names etc. How else would the fund know?

    As for lillybet and her husband's difficulties, I would suggest a call to the ATO who may be able to assist him recover moneys paid wrongly.

    I am getting more than a bit fed up with the constant implication that 'we' find even basic things too confusing that we need everything interpreted to the language of a five year old. And instead of constantly looking for scapegoats and someone to blame, take some responsibility and make your own decisions like an adult should.
    LiveItUp
    22nd Jun 2015
    1:35pm
    I agree people need to take responsibility for their own affairs and take action when required.
    The Bernster
    22nd Jun 2015
    1:41pm
    Totally agree, people need to actively take care of their own affairs.
    Chris B T
    22nd Jun 2015
    1:00pm
    You could remove your funds and look after it yourself.
    No fees to pay and blame yourself if doesn't workout, you will lose the Tax Shelter by removing the funds. (Have A Go And Spend).
    No more complaining.
    LiveItUp
    22nd Jun 2015
    1:33pm
    Whole super industry is just set up to benefit the providers even though it is supposed to benefit the contributors. Some of those insurance components have such excessive fees. I had enough of managed super funds by 2001 and set my own SMSF fund. I just wish now I had done it sooner as the returns have increased significantly.

    My son works 2 jobs and one job has no super fund choice. So we just take what is in it about every 12 months and move it to the other fund.
    Anonymous
    22nd Jun 2015
    4:19pm
    Chris B T, if your super is based on the Assets Test you need not lose any tax shelter provided your annual allocated pension payments together with your yearly income earning ability (like potential interest on investments as per your Centrelink Aged Pension Statement) are below the capped maximum for your situation. That is, your status like married or single, home owner or not. If you go over the annual capped maximum you will be required to pay 15% tax on the extra. This is the way it stands now, and God only knows what the floundering LNP government will make it tomorrow or the day after. My advice, for the little it's worth, would be to draw up the maximum in your allocated pension, but keep it below the "capped" figure. The whole exercise, of course, depends on how much you have in super, your age, your needs and wants, and if you can and want to fall into one of the new Age Pension Eligibility categories to come into effect on 1/1/2017 (if we live that long!) which will give you more pension $'s - like couples who own their own home and have additional assets of less than $451,000. It might sound a bit complicated, but not rocket science by any means. Just talk to someone cluey who you can trust (I know, this is a hard combination to find) and go from there with your gut feeling. Good luck and happy spending.
    Adrianus
    24th Jun 2015
    12:37pm
    Bonny, why not consider to move your son into your smsf. As with trusts it will have a 99 year life so he can takeover control when mum and dad are watching from above. Tip. have a maximum of 4 members.
    Ahjay
    22nd Jun 2015
    3:07pm
    I am peeing into the wind. However, I have been saying for years that until we have a universal age pension and retirement system for all Australians,including Politicians and Public Servants, we will never have a satisfactory system. We need this to make it tamper proof. Why should our servants get a better deal than us,their masters?
    rratrr
    22nd Jun 2015
    3:23pm
    I totally agree Ahjay. And how do we do that, yes a Royal Commission and just wait and see what that uncovers. The Financial Inquire has only just touched the sides.
    Ahjay
    22nd Jun 2015
    8:09pm
    Unfortunately,the appointments and terms of reference will be chosen by our servants,not by us.
    Rose
    22nd Jun 2015
    9:10pm
    Why my Super never send me a statement on the fees deducted . Send colourful,verbose self-loving messages ,but never a straight answer : how much money do you deduct in expenses?
    Who will suggest me the way to rephrase the question as to have an answer?
    rratrr
    23rd Jun 2015
    8:36pm
    Rose, I discovered my first Statement of Advice from a financial planner, (based on my risk for investment) by mistake at a high profile solicitors office 7 years after it was written. You are worried about fees charged? I am worried about what these bastards have got away with and the government shying from a Royal Commission to expose it all.


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