Millions of Aussies don’t realise how much they are forking out in fees to their superannuation fund. It’s a common mistake that could be costing them thousands of dollars a year and as much as $100,000 at retirement.
Most super funds apply multiple fees to account holders, including administration fees, investment fees, transaction fees, insurance premiums, activity fees and performance fees. These can quickly eat into your retirement nest egg if you’re paying more than you need to.
Independent financial adviser and BFG managing director Suzanne Hadden told Yahoo Finance the general rule of thumb was your super fees shouldn’t be more than 1 per cent of your balance per annum.
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“If it was above that, you’d look extremely closely and if you’re below that, you might feel a bit more comfortable,” Hadden said.
“When they talk about that 1 per cent that is generally not going to talk about the advice element and the insurance element. You also have to look at insurance and advice and what you’ve been paying for that as well.”
Previous Productivity Commission research found higher fees of just 0.5 per cent can cost a typical worker 12 per cent of their balance, or $100,000, by the time they retire.
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Aussies in the dark over fees
New research from Vanguard found two in three Aussies did not realise their super fund could charge them multiple fees, with a third admitting they had never reviewed or compared the fees across funds.
“Australians will be shocked to find out how much is being drained from their retirement savings through fees,” Vanguard managing director Daniel Shrimski said.
Shrimski said super fees were often confusing for Aussies to understand and compare and this created a barrier for many people.
“Regulatory guidance exists for disclosure documents or a fund’s MySuper dashboard, but when it comes to how fees are presented on websites, social media and in advertising, there is no consistency. It’s confusing, unclear, and impossible to compare,” he said.
“By keeping fees confusing, it’s taking advantage of the low engagement and financial literacy of Australians when it comes to their superannuation.”
Aussies urged to do super health check
Hadden recommended people use the ATO’s Your Super tool as a starting point to compare super funds. The tool compares super fund annual fees and performance.
“If you’ve got a myGov account, you can actually go on your myGov account and go in and have a much more personal tailored comparison,” Hadden told Yahoo Finance.
“The tax office knows your super fund and that’ll compare, if your funds in the list, your fund. That’s a fairly quick thing for people to do.”
Hadden said to make sure you were “comparing apples and apples” and check factors like the risk level of the product.
When comparing fees, Hadden said it was important to compare funds with similar asset allocations.
“Generally as you take more risk, so having more money in shares and property, the fees percentage can go up,” she said.
“The reason is the more involved the investment is, it’s more work for the manager and you’re expected to earn a higher return after that fee.
“So the higher the asset allocation to growth assets, generally, you’d expect a higher percentage fee but you’d expect a higher return after the fee in the long term.”
Hadden recommended people compare their super fund at least once a year and suggested people use their annual statement as a prompt.
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