What fees do Australian super funds charge?

What superannuation fees are you paying? Here we outline some common super fees you might be charged and how much they could be nibbling away at your balance.

Share market volatility caused by COVID-19 has shrunk many Australians’ super balances. According to statistics released by the Australian Prudential Regulation Authority (APRA), the value of total super assets decreased by 7.7%, or $227.8 billion, over the March 2020 quarter.

This comes as millions of Australians financially impacted by the pandemic apply to withdraw their super early. According to APRA, at the time of writing, over 1.7 million people have applied to access their super, with the average person taking out $7,476 from their fund.

If your super’s been affected, there are a few steps you could take to start rebuilding your balance. In addition to considering your fund’s investment performance, it’s also important to take a look at what fees you are being charged.

Some of the common fees that eat away at your savings include:

  • Administration fee
  • Investment management fee
  • Performance fee
  • Other fees such as an advice fee, investment switching fee and buy/sell spread fee

Exit fees are now banned. This means super funds cannot change you a fee for moving all or part of your super balance to a different fund.

In addition to fees, it’s also worth noting that most super funds automatically provide some members with life insurance – typically, life cover and total and permanent disability (TPD) insurance. Since 1 April 2020, this is now provided on an opt-in basis for new members who are under 25 or have a balance below $6,000. The cost of insurance within super will typically depend on factors such as your level of cover, your age and your occupation. Premiums are automatically taken out of your super balance and you can opt out of this insurance if you want.

Administration fee

Administration fees are charged by super funds to cover the general cost of managing your super account. This can cover expenses such as the super fund’s call centre service, and the cost of issuing annual statements. Administration fees can be charged as a fixed fee, as a percentage of your account balance, or as a combination of both. Many super funds have a cap on the total administration fees that can be charged in a year.

Investment management fee

This fee covers the costs of managing your investments. This may cover fees paid to investment managers and amounts paid to external parties such as brokers and government authorities. It is usually charged as a percentage of your super balance and can vary based on your choice of investment. In some cases, the investment management fee will also include any performance fee.

Performance fee

Some super funds charge a separate performance fee once certain targets have been exceeded. Generally, fees are calculated as a percentage of the investment returns that exceed an agreed level of return, and are often capped at an upper percentage limit.

Advice fee

While most super funds offer general advice for free, a one-off fee may be charged for personal advice provided about your super and other investments by an adviser.

Investment switching fee

Some super funds charge a fee for switching your investment option. For example, if you were to switch from a balanced investment to a high growth investment, you may be charged a fee. Some funds may charge a buy/sell spread fee, instead of a switching fee.

Buy/sell spread

When you make contributions, withdrawals or switch your investment options, you are buying or selling investment units. Buy/sell spread fees cover the difference between the buy and sell price and are charged by some super funds.

Comparing superannuation funds

If you’re comparing Superannuation funds, the comparison table below displays some of the products currently available on Canstar’s database for Australians aged 30-39 with a balance of up to $55,000, sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Use Canstar’s superannuation comparison selector to view a wider range of super funds.

Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group you selected.

How much are super fees?

Canstar Research has calculated the average annual super fees across a range of account balances. This includes administration fees, investment fees, performance fees and other indirect costs. On average, super members in the default investment option pay between 0.94% to 1.28% of their account balance in fees, depending on their age and super balance. It’s also worth noting that administration and investment fees are capped at 3% of your account balance if you have a balance below $6,000.

Average superannuation fees across a range of balances
Age profile Super balance $ % of balance
20 to 29 $30,000 $383 1.28%
30 to 39 $80,000 $883 1.10%
40 to 49 $180,000 $1,893 1.05%
50 to 59 $500,000 $5,075 1.01%
60+ $1,500,000 $14,076 0.94%
Source: www.canstar.com.au – 14/04/2020. Based on the default investment option for superannuation fund listed in Canstar’s database. Fee totals include administration fees, investment fees, performance fees and other indirect costs.

We’ve also collected data on the minimum and maximum super fees for the same range of balances.

Minimum and maximum superannuation fees across a range of balances

Age profile Super balance Min Max
$ % of balance $ % of balance
20 to 29 $30,000 $201 0.67% $818 2.73%
30 to 39 $80,000 $426 0.53% $1,973 2.47%
40 to 49 $180,000 $876 0.49% $4,283 2.38%
50 to 59 $500,000 $2,316 0.46% $11,675 2.34%
60+ $1,500,000 $4,928 0.33% $34,775 2.32%
Source: www.canstar.com.au – 14/04/2020. Based on the default investment option for superannuation fund listed in Canstar’s database. Fee totals include administration fees, investment fees, performance fees and other indirect costs.

As you can see, super fees can vary greatly depending on your age, account balance and which super fund you are with.

What difference can super fees make to your retirement nest egg?

Fees make an impact over the course of your working life, which you can see when you look at your regular super account statement. “Don’t pay too much in fees,” said Canstar’s finance expert Steve Mickenbecker, speaking with 7NEWS Sydney about the steps you can take right now to protect your super.

As a hypothetical example, Canstar’s research team looked at how the super balance of a 25-year-old might change depending on whether they paid fees of 0.75% or 1.50% of their account balance per year. This was based on an average starting gross annual income of $86,237, growing at 2.1% annually, and average investment returns of 7.90%.

In this scenario, someone paying 0.75% of their super balance in fees per year would have $215,482 more at retirement compared to someone paying 1.50% of their balance in fees.

Superannuation Retirement Balance Projection – Example of the Impact of Fees
Scenario 1 Scenario 2
Starting Age 25 25
Retirement Age 67 67
Average Starting Gross Annual Income $86,237 $86,237
Average Starting Balance $23,749 $23,749
Average Investment Returns 7.90% 7.90%
Fees as a Percent of Balance 0.75% 1.50%
Average Life Insurance Premium $189 $189
Account Balance at Retirement $1,089,952 $874,470
Difference Between Scenario 1 & Scenario 2 -$215,482
Source: www.canstar.com.au – 20/05/2020. Based on a 25 year old with a starting balance of $23,749 per APRA Annual Superannuation Bulletin, starting gross annual income of $86,237, growing 2.1% annually, per ABS Average Weekly Earnings and Wage Price Index, retiring at age 67. Salary Sacrifice amount assumed paid into super fund quarterly. Employer contributions are presumed taxed at 15%. SG contribution amounts per Government announced rates. Investment returns assumed to be 7.90% p.a. per APRA Annual Superannuation Bulletin average 10-year annualised rate of return. Net performance deducts average fees of 0.75% p.a. of balance (scenario 1) and 1.50% p.a. of balance (scenario 2). Average life insurance premium of $189 is assumed charged at the end of each year based on products in Canstar’s database for an average balance of $80k and age of 45 years old. End balance at retirement amounts are shown in “today’s dollars”, i.e. they have been adjusted for inflation. Please note all information on income, annual superannuations fees and performance returns are used for illustrations purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.

Choosing a super fund that’s right for you can make a significant difference in the long run. If you’re looking to compare super funds, you can compare a range of funds using Canstar’s comparison tables. Before making any decisions about you super, it may be worth considering professional superannuation advice.

Learn more about Super

This article was originally published by Christine Thelander.

Main image source: GaudiLab (Shutterstock)

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