Why superannuation fund fees matter

Share this article:

The fees you pay on your super could have a material impact on how you retire, which is why it's important to understand how they work.

.

A quick internet search of the term “super fees” turned up other questions people ask, including “what fees are charged on superannuation?”, “do all super (funds) have fees?” and “how do you calculate super fees?”.

While highly unscientific, this little experiment illustrates an issue that many Australians grapple with when it comes to trying to understand what fees they are charged on their superannuation investments.

But before we break down the various aspects of fees that you should be aware of, perhaps the more vital point to understand here is why fees matter in the first place.

The short answer is that the fees you pay on your super could have a material impact on how you retire. Analysis by the Productivity Commission found that an increase in fees of just 0.5 per cent can cost a typical full-time worker around 12 per cent of their super balance - or $100,000 - by the time they reach retirement. It is not an insignificant amount and given that it is one of the largest assets you will have in your lifetime, it is really important to understand exactly what you are paying for.

Types of fees

There are different types of fees that make up the overall fee you pay but generally, your total fees comprise of an administration fee, an investment fee and a transaction fee. Another fee that you should be aware of are the costs you incur when you make a contribution to your account, switch between investment options and make a withdrawal. These are costs typically associated with buy/sell spreads incurred for the buying or selling of underlying investments and depending on the fund, are usually deducted from your returns. And while this is not a fee, do note that there are tax implications to consider when making an additional contribution, particularly if you’ve exceeded your concessional limit.

One way of checking what you currently pay is by taking a look at the Product Disclosure Statement (PDS) of your super fund, or by checking your annual statement. You can also use the ATO’s YourSuper comparison tool to compare the fees you’re currently paying against other funds.

Another ‘fee’ or cost to consider is that of insurance premiums, which are typically deducted from your super balance. Most funds automatically provide you with life cover (also known as death cover) and total permanent disability (TPD) while it is an opt-in for others. Some funds also automatically provide income protection insurance while others don’t. Always consider what you need before deciding to keep or cancel your insurance.

Last but not least, another fee you could be charged relates to advice. Your super fund could provide specific types of financial advice if you ask for it, and charge a fee if certain criteria for the provision of advice are met. This fee is non-ongoing (ie charged only when you require the service) and your consent is required before it is deducted.

Comparing like for like

When comparing fees between super funds, it is also important to understand if you are comparing products in the same category. For instance, just like comparing the cost of a bicycle and the cost of a motorcycle would not make sense even though both are vehicles that can get you from point A to point B, comparing fees of products from different categories would not be meaningful.

If you are currently invested in an Australian equities fund, comparing the fees you’re paying with another fund’s cash investment option is unlikely to be useful. Rather, assessing fees between funds that have similar investment styles and asset allocation mixes would be closer to a like for like comparison.

Is it right for you?

While knowing how much you’re paying for a fund is important, knowing what you’re paying for and whether it is right for you is even more so. While the fees of a fund mostly invested in equities (typically labelled a High Growth fund) might be low, the risks of investing in said fund might be inappropriate for a member looking to balance income and capital growth because they are transitioning into or already in retirement. Therefore, the discussion around low fees for such a product would likely be moot for this member.

Similarly, looking at the fees of a single sector fund may be a good starting point but if your investment goals and strategy involves investing in a mix of asset classes, then don’t overlook the multiple sets of fees that are incurred when investing in multiple single sector options.

Every dollar contributed to your super is money you’ve worked hard for – that, and the fact that it will likely constitute a large component of your overall wealth and a critical component in funding your retirement, is reason enough to pay more attention to the what, how and whys of super fund fees.

 

 

 

By Vanguard
vanguard.com.au

Want to know more?

Do you have a question about something you've read in this article? Need more information? Want to book an appointment? Simply let us know below and we'll get back to you ASAP.

Share this article:

Get in touch

logo

General Advice Disclaimer | Privacy Policy

Contact Us

General Disclaimer

The information contained on this website is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek the appropriate financial advice and read the relevant Product Disclosure Statement or other offer document prior to acquiring any financial product.

Dr John Tickell is a registered Medical Doctor, who graduated at the University of Melbourne, Australia. Dr John has spent several decades travelling and researching the eating and living habits of the longest living, healthiest people on our planet.

The author may give opinions and make general or particular statements in this literature regarding potential changes of lifestyle habits based on experience and research. You are strongly advised not to make any changes or take any action as a result of reading or listening to this material without specific advice from your doctor, physician or registered Health Professional.

The author, the Publisher, the Editor and their respective employees or agents do not accept any responsibility for the actions of any person, or injury, loss or damage occasioned - actions which are in any way related to information contained herein.

Opinions and statements in this literature are based on verified research and experiences by the authors and are to be regarded as health and wellness advice.

Privacy Policy

What Personal Information Do We Collect?

The personal information that we collect will depend on your relationship with us and the service(s) you or your organisation have engaged us to provide or are interested in. It may include:

Name and contact information (including telephone and mobile number, email address and residential and postal address);

Individual information (including racial or ethnic origin(s), language(s) spoken, religious belief(s) and affiliation(s), date of birth, age, place of birth, gender(s), occupation(s), employment and qualification details, financial records, income details, asset listings, taxation records, bank account details, insurance policies, medical history, disability status, criminal record and Court records);

Payment and transactional information (including banking and credit card details);

Other personal or sensitive information (including information contained in communications or documents, any information required due to the nature of your matter, or information we are required to or permitted to collect by law).

Collecting Personal Information

HOW WE COLLECT PERSONAL INFORMATION

We may collect your personal information directly from you or in the course of our dealings with you. For example, we collect personal information from you or about you from:

Correspondence between you and us;

Meetings and interviews with us, telephone calls with us, the instructions you provide to us;

Visits to and submissions you make on our website;

Your interactions with our electronic direct mail and/or emails from our marketing campaigns (such as clicks on links included in these emails); and

Registration and forms you may fill in for our marketing-related activities and events.

WHY WE COLLECT, HOLD AND USE PERSONAL INFORMATION

We collect and hold your personal information for a variety of purposes, and you permit us to use it:

To provide you with our services and carry out our business functions;

For purposes related to the provision of our services such as , educational briefings, seminars and coaching and other service offering updates, conducting client satisfaction surveys and feedback requests, statistical collation and website traffic analysis;

Where you have consented to its use or disclosure;

Where we reasonably believe that use or disclosure is necessary to lessen or prevent a serious, immediate threat to someone's health or safety or the public's health or safety;

Where we reasonably suspect that unlawful activity has been, is being or may be engaged in and the use or disclosure is a necessary part of our investigation or in reporting the matter to the relevant authorities;

Where such use or disclosure is required under or authorised by law (for example, to comply with a subpoena, a warrant or other order of a court or legal process);

Where we reasonably believe that use or disclosure is necessary for the prevention, investigation, prosecution and punishment of crimes or wrongdoings or the preparation for, or conduct of, proceedings before any court or tribunal (or the implementation of orders of a court or tribunal or on behalf of an enforcement body);

To develop and improve our business, products and services; and

For any lawful purpose.

Where we wish to use or disclose your personal information for other purposes, we will obtain your consent.

HOW WE HOLD AND STORE PERSONAL INFORMATION

Your personal information is held and stored on paper, by electronic means or both. We have physical, electronic and procedural safeguards in place for personal information and take reasonable steps to ensure that your personal information is protected from misuse, interference, loss and unauthorised access, modification and disclosure:

Data held and stored on paper is stored in a secure premises.

Data held and stored electronically is protected by internal and external firewalls, high encryption and all access to electronic data including databases requires password access

Access to personal information is restricted to staff and contractors whose job description requires access. Our employees and contractors are contractually obliged to maintain the confidentiality of any personal information held by us.

We undertake regular data backups, with the data copied and backed up to multiple locations for redundancy purposes.

Our staff receive regular training on privacy procedures.