Millions of adult Australians have superannuation either in a managed accumulation account if they’re still in the workforce, or in a managed account-based pension once they retire.
Many of us closely monitor our account balances, net investment earnings, and, for those still contributing, our total contributions for the financial year.
However, when it comes to understanding the fees we’ve paid, things can quickly get complicated.
Superannuation fees are often confusing, and many Australians may not be aware that they could be charged up to six different types of fees.
Each super fund provides an annual statement that summarizes the fees deducted from your account over the financial year. Additionally, regular fee deductions are usually detailed in your transaction history.
However, it’s common for super funds to label these fees under "administration fees," which can include a variety of different charges bundled together.
Beyond the lack of transparency surrounding these fees, comparing fees across different super funds can be quite a challenge due to the inconsistency in how they are presented on websites, social media, and advertising, as opposed to formal product disclosure documents (PDS) or a fund's MySuper dashboard.
When you do compare your super fees with those of other providers, it's crucial to ensure you're comparing similar types of fees. The three primary categories of super fees are administration fees and costs, investment fees and costs, and transaction costs.
Administration fees and costs
Superannuation funds impose administration fees to manage the costs involved in operating your super account. These fees are typically calculated as a fixed percentage of your current account balance.
Additionally, all trustees of super funds are legally required to maintain an Operational Risk Financial Requirement (ORFR). This fee is usually charged monthly and is reflected on your annual statements as the ORFR Admin Fee.
Investment fees and costs
Investment fees are associated with managing the investment options you select within your super fund, and these may vary across different options. This category includes management costs tied to your asset allocations, as well as fees from third-party providers. Generally, these costs are deducted from investment returns before being credited to your account.
Some super funds may also apply “performance fees” on their MySuper default options when investment returns exceed a defined target level specified in their Product Disclosure Statement (PDS). These fees primarily relate to charges from third-party active investment managers.
Performance fees are typically assessed as a percentage of the investment return that surpasses the specified target and will be included within the investment fees. To find out the percentage or costs associated with performance fees, members should review the details in their fund’s PDS.
Transaction costs
Transaction costs arise from routine investment management activities involved in buying and selling the underlining assets of the super fund. Similar to investment fees, these costs are usually deducted from investment returns before being applied to your account and are not listed as separate items in your account activity records.
Other fees and costs
It’s common for super funds to implement a buy/sell spread to recoup costs whenever contributions, withdrawals, or changes in investment options occur. The buy/sell spread refers to the difference between buying and selling underlying investments, with the charged amount varying based on your investment choices and transaction volume.
Some super funds may also impose switching fees if you decide to transition between investment options, such as changing from a growth strategy to a balanced one.
Insurance fees for default coverage like death and total permanent disability (TPD) also apply unless you choose to opt-out. These fees are typically deducted from your balance on a monthly basis.
Lastly, if you receive personal financial advice from a licensed adviser, advice fees may be charged and, with your consent, deducted from your super account.
While this information may seem complex, you can easily track the total fees incurred throughout the year by reviewing your member statement.
Be careful!
As a financial advisor, I’ve seen some pretty creative mathematics out there, coming from some of the more prominent warm and fuzzy “we’re on your side” funds. So ignore the soundbites and do your homework, make sure you are comparing like for like, and if in doubt seek financial advice.
Rick Maggi CFP, Financial Advisor, Perth