The sneaky super sapper that could eat $100,000 from your retirement

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Superannuation gets a lot of coverage, and while I’d like to say I’m sorry about it, I’m not really. Australians are lucky enough to have one of the world’s best retirement savings systems, with an extremely generous taxation treatment to boot. It genuinely is one of the most important things you’ll do with your money in your lifetime.

However, because of its outsized importance, advice about super is thrown around frequently and reinforced over and over (again, sorry-not-sorry), so much so that it can become a bit of a mush after a while.

It can be easy to overlook superannuation fees.Credit: Aresna Villanueva

What’s the problem?

So this week, I’d like to drill down into one aspect of super that everyone should be across: fees. Each year, Australians pay $32 billion in fees to their super funds, and while the majority of these are fair and reasonable, there are plenty of funds out there still charging fees that are too high.

What you can do about it

Here’s all you should know about super fees, and how to check if yours are too high:

• Why should I worry about fees? Fees, inherently, are a bad thing. Yes, they’re entirely understandable, but as a consumer, it sucks having to pay extra on top of what you were already paying for. Generally, this means people will go out of the way to avoid paying fees, but due to the set-and-forget nature of super, it can be pretty easy to ignore. However, according to the Productivity Commission, paying fees of just 0.5 per cent more, regardless of the base fee, could see the average worker $100,000 worse off by the time retirement comes around. “Essentially, the more fees deducted from your superannuation, the less money you will have when you retire,” says Richard Whitten, superannuation expert at Finder. “Therefore, understanding and managing these fees is crucial for maximising your retirement savings.”

• What sort of fees are there? Super fees are generally discussed as one sort of homogenous blob, but as Dawn Thomas, financial adviser at The Wealth Designers says, there are actually numerous different types of fees. These include an admin fee, investment management fee, performance fee, investment switching fee and buy/see spread fee. Realistically you only really need to worry about the first two or three of these. “You may spot the admin fee on your statement, however the investment linked fees are bundled into the performance of the investment,” Thomas says. “You will need to refer to the fund’s Product Disclosure Statement to get a sense on what the fee breakdown is.” One thing worth noting about admin fees: the higher they are, the quicker you can expect a response from your fund for things like switching investments or insurance/death benefit payouts. This could be worth considering at different stages in life.

• How much is “too much”? The general rule of thumb for super fees is to make sure they are less than 1 per cent of the value of your super balance per year – e.g. for a $50,000 balance, aim for annual fees of about $500 or less. However, Thomas notes not all fees are made equal, with some funds demanding higher fees than others depending on your investment allocation. “It is important to compare fees on an apple-to-apple basis,” she says. “Generally, if there are more growth assets like shares in your investment option, that will cost more. If you are in a more passive option like an index fund, this will be cheaper than an active fund.” For the majority of funds post Royal Commission, fees are under 1 per cent – so if they’re any higher it’s definitely time to start asking questions.
• How do I check what my fees are? Comparing super fees has never been easier thanks to the government’s YourSuper tool, which links to your MyGov account and can compare your fund with others. However, it is important you’re comparing your fund with other similar funds. If you really want to get into the weeds of it, Whitten advises checking your fund’s Product Disclosure Statement for additional info, which is a document you can get through your fund’s online portal. “Check your annual superannuation statement, which summarises deducted fees,” he says. “If you’re still unsure, contact your superannuation fund directly for clarification.”

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.