New low-fee Vanguard super fund debuts in Australia

A new player is shaking up the Australian superannuation space claiming to offer a low-cost service – but some have been quick to point out a massive flaw.

A multi-trillion dollar global company has just launched a new low-fee superannuation fund for Australians under the age of 47.

On Friday, Vanguard announced it had entered the Australian superannuation market.

The company claims it offers the lowest fees in the super sector, charging 0.58 per cent a year in investment and administration fees.

“That’s $290 on a $50,000 balance – one of the lowest on the market. We keep it simple by talking about our administration, investment and transaction fees and costs together as a yearly fee,” Vanguard said.

Vanguard claimed the fee was the “lowest in the Australian superannuation market for member balances under $50,000, and for members aged 47 years and under”.

The firm’s managing director of the Australian branch, Daniel Shrimski, said: “We want to deliver members a low-cost, high-quality super fund that includes a default offer designed to move with them right through life.”

However, despite only just launching, the fund is already getting called out by experts.

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Vanguard Australia boss Daniel Shrimski. Picture: NCA NewsWire/Luis Enrique Ascui

“Vanguard Super is not the cheapest super fund for anyone,” Craig Swanger, a former chief investment officer at Macquarie, told Australian Financial Review.

He pointed out that it is on the cheaper end of the spectrum for MySuper options, which is when workers are put into a default fund that is regulated by the government.

However, there are funds not on the MySuper list that offer better rates for consumers.

There are numerous index “choice” (that is, non-MySuper) funds on the market with the same or similar asset allocation, he said.

Australian author Scott Pape, the man behind The Barefoot Investor, also pointed out the flaws with the firm’s bold claim.

“There are cheaper superannuation index funds available,” he said in an emailed note.

He also said it was worth noting: “Vanguard has said they’ll look to lower their fees over time as they grow. I’m inclined to believe them, because that’s what they have a history of doing.”

Australians also took to Reddit to criticise the rate, saying it was a much higher fee than expected given the promise of being a low-fee fund.

Australians are trying to protect their nest eggs by choosing the right super funds to invest their money in. Picture: iStock

It comes as data from Super Consumers Australia released last month found that the Australian Prudential Regulation Authority (APRA)’s new superannuation performance test has impacted on administration fees charged to Australias.

There are two components to the performance rating – investment performance, and the fees and costs associated with a superannuation fund.

The worst offenders have lowered costs to members but top-performing funds have actually hiked their fees.

The organisation found products that failed the performance test last year had lowered their fees by 20.6 per cent on average, while funds that came close to failing cut fees by 5.7 per cent.

However, top-performing funds that also benefited from an influx of new members have raised fees by an average of 5.7 per cent, including AustralianSuper, Rest and Insignia.

Just a 0.5 per cent difference in fees can cost a typical full-time worker about 12 per cent of their balance – or $100,000 – by the time they reach retirement, according to the Productivity Commission.