What fees do Australian super funds charge?

TAMIKA SEETO
Are you paying higher superannuation fees than you need to? Canstar looks at how much the average Australian is paying in super fees and how much it could be impacting your retirement savings.

If your super has been affected by the coronavirus pandemic, you may be looking for ways to start rebuilding your balance. One step you can take is to look at the fees you are being charged.


In this article:


Types of super fees

Firstly, let’s unpack the different types of super fees that are commonly charged. Super funds charge a range of fees, which are usually deducted from account balances. Fees can include:

It is important to note that you shouldn’t be charged exit fees for moving all or part of your super balance to a different fund. These fees were banned by the Federal Government in 2019.

Administration fee

Administration fees are charged by super funds to cover the general cost of managing your super account. This can cover expenses like 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 cap the total administration fees that can be charged in a year. Additionally, if you have an account balance below $6,000, your administration and investment fees are capped at 3% of your account balance.

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 option. In some cases, the investment management fee may also include a 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 option to a high-growth one or vice versa, you may be charged a fee. Some funds may charge a buy/sell spread fee, instead of a switching fee.

Buy/sell spread fee

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 buying and selling price and are charged by some super funds.

The types of fees and the amount charged varies depending on the super fund and product, so read your annual statement to find out how much you are paying. You’ll also be able to find the fees on the super fund’s website.

If you have more than one super account, you may also be paying fees on both accounts. If this is the case, you might want to consolidate your super into one account. Before you do so, check with your current super funds to see if there are any related costs and any insurance cover you might lose if you switch funds.

Some people will automatically receive life insurance through their super. Life insurance premiums are taken out of your super balance, which will appear in your statement. It can be a good idea to consider the coverage offered to understand what you are receiving and whether it suits your needs. You may have an option to increase coverage by contacting your super fund, and you can opt out of this insurance if you choose.

How much do Australians pay on average in super fees?

Canstar has calculated the average annual super fees across a range of ages and account balances. Fees include administration, investment and performance fees, as well as other indirect costs.

On average, people in the default investment option pay between 0.88% to 1.24% of their account balance in fees per year, depending on their age and super balance and based on super products in Canstar’s database.

Super fees can vary greatly depending on your age, account balance and which super fund you are with, so it can pay to compare your options.

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 specified.

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

Fees you pay today and over the course of your working life can significantly affect your superannuation balance at retirement.

As a hypothetical example, Canstar looked at how the super balance of a 25-year-old might change by their retirement, 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 income of $61,984, 2.5% inflation (on average) each year, and average investment returns of 6.85% per annum.

In this scenario, someone paying 0.75% of their super balance in fees per year would have $135,802 more at retirement compared to someone paying 1.50% of their balance in fees.

The difference 0.75% in fees can have on your retirement balance

Scenario 1 Scenario 2
Starting age 25 25
Retirement age 67 67
Starting gross
annual income
$74,516 $74,516
Starting balance $25,096 $25,096
Average investment
returns
6.85% 6.85%
Fees as a
percentage of
balance
0.75% 1.50%
Average life
insurance premium
$191 $191
Account balance
at retirement
$821,749 $662,353
Difference to
Scenario 1
retirement balance
-$101,796

Source: www.canstar.com.au. Prepared on 24/05/2021 based on data available as at that date. Scenarios begin at the start of the 2021-22 financial year and are based on a 25-year-old with a starting balance of $25,096 (per the average from APRA’s Annual Superannuation Bulletin for a 25- to 34-year-old) with a starting gross annual income of $74,516 (the median figure for an employee working full-time in their main job per the ABS’ Characteristics of Employment data), growing 2.5% annually (per the RBA’s inflation target), retiring at age 67. SG contribution amounts are per government-announced rates and assumed to be paid into superannuation fund quarterly. Employer contributions are assumed to be taxed at 15%. Investment returns assumed to be 6.85% p.a. based on the average 10-year annualised rate of return per the APRA Superannuation Bulletin (June 2020). Net performance deducts fees of 0.75% p.a. or 1.5% p.a. of balance for scenario 1 and 2 respectively. An average life and TPD insurance premium of $191.35, growing 2.5% annually (per the RBA’s inflation target), is assumed to be charged at the end of each year based on products available for a 25-year-old on Canstar’s database. End balance at retirement is shown in “today’s dollars”, i.e. it has been adjusted for inflation. Please note all information on income, annual superannuation fees and performance returns are used for illustration 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. However, keep in mind that past performance is not a reliable indicator of future performance. You can compare super funds based on annual costs using Canstar’s comparison tables. You can also compare investment performance and other factors. Before making any decisions about you super, you may want to seek professional advice.

Learn more about Super

Cover image source: GaudiLab/Shutterstock.com

This article was originally published by Christine Thelander. Data last updated in June 2021 by our Sub Editor Tom Letts.