Hidden fees are a super problem
By Tony Kaye, Senior Personal Finance Writer
Super and retirement
The super fees you’re probably being charged. It’s key to compare like for like.
Millions of adult Australians have superannuation that’s either held in a managed accumulation account, if they’re still working, or a managed account-based pension, if they’re retired.
And most of us keep an eagle eye on our account balance, our net investment earnings and, if we’re still making contributions, how much we’ve put in so far this financial year.
But when it comes to knowing how much we’ve paid in various fees, well, that’s generally more challenging to decipher.
In fact, superannuation fees are confusing and most Australians don’t realise they are being charged up to six different types of fees.
Super funds will issue an annual statement that aggregates the fees that have been charged to your account during the financial year. Regular fee deductions are also typically listed in your transactions history.
Yet, most super funds typically bundle up the fees that they’ve charged you as “administration fees”. These often incorporate a range of different charges.
As well as a general lack of transparency when it comes to fees, it is also very difficult to compare fees across super funds because there is no consistency on how fees are presented on websites, social media and in advertising outside of product disclosure documents (PDS) or a fund’s MySuper dashboard.
If you compare your super fees with those of other super providers it’s important to make sure you are comparing like for like.
The three main categories of super fees are administration fees and costs; investment fees and costs; and transaction costs.
Administration fees and costs
Super funds charge administration fees to cover the costs associated with administrating and operating your super account. These fees are often levied at a fixed percentage rate based on your current account balance.
All super fund trustees also have a legislative requirement to fund and maintain an Operational Risk Financial Requirement (ORFR). This fee is normally charged monthly to members and is recorded on annual statements as an ORFR Admin Fee for Vanguard Super.
Investment fees and costs
Investment fees typically relate to the costs involved in managing the investment options you have chosen within your super fund and may vary between different options. These can include investment management costs based on your asset allocations and costs levied by third parties. They are usually deducted from investment returns before they are applied to your account.
Some super funds charge “performance fees” on their MySuper default options if their investment returns exceed a target level stipulated in their PDS. These typically relate to fees that are charged by third party active investment managers.
Performance fees are normally charged based on a set percentage of an investment return that is above the specified target level and are lumped into the investment fees category. To determine the percentage or costs associated with performance fees super fund members generally need to read the fine print of their fund’s relevant PDS.
Vanguard Super is the only fund that does not have a performance fee and has a single yearly 0.56% fee made up of administration, investment, and transaction fees and costs.
Transaction costs
Transaction costs are generally incurred as part of daily investment management activities to buy and sell underlying assets held by the super fund. They will also usually be deducted from investment returns before they are applied to your account and do not appear as specific items in your record of account activity.
Other fees and costs
Super funds also typically charge a buy/sell spread to recover the cost whenever you make a contribution, withdrawal, or switch investment options. The buy/sell spread is the difference between the buying and selling of the underlying investments. The buy/sell spread charged depends on your investment option and the number of transactions you make.
Some super funds can also charge switching fees if you decide to switch between different investment options, such as from a growth to a balanced asset allocation strategy.
Insurance fees (for default death and total permanent disability (TPD) cover) will also apply unless you decide to opt out of the cover. These fees are generally payable on a monthly basis and deducted from your account balance.
Lastly, where personal financial advice is provided by a licensed financial adviser, advice fees can be levied and, with your consent, can be paid via a deduction from your super account.
While this may all seem daunting, and not easily understood, one way you can check on the total fees that you have been charged throughout the course of the year is to review your member statement.
Compare apples with apples
If you compare your super fees with those of other super providers it’s important to make sure you are comparing like for like, especially as different super funds tend to have a range of investment options charging different fee levels.
A good starting point is to check investment options that are closest to the allocations you have in your current super fund. You may need to investigate what other super funds are investing in, and their percentage allocations.