How to boost your superannuation and find low fee funds

After a stellar 2024, workers are bracing for more muted returns on their super savings this year. But you could be $100,000 better off over the long term using this simple strategy.

Investors enjoyed a bumper 2024 but there’s still ways to win with your super.

Workers are bracing for more muted outcomes on their super savings this year following stellar returns in 2024.

Volatile markets plays a key role, but hidden fees are another culprit dragging down returns.

Engaged super members are likely across how much their super goes up or down each year, but even in this cohort there’s plenty who don’t pay attention to how much they’re being charged by their fund in administration or investment fees. This oversight can have a big impact on savings balances come retirement day.

On the cheaper side are the indexed options, like at Vanguard Super. The $US10 trillion investment giant stepped into the Australian superannuation market two and a half years ago with a clear aim to undercut the majors on fees, promising simplicity, transparency and a low-cost investment approach.

The fund now has 30,000 members whose super is wholly invested in passive index-tracking funds, with no exposure to the unlisted market other major super funds have been so quick to chase.

“We like the listed environment because we’ve proven that’s what we’re good at, that’s where we have the investment expertise. We also like the fact that it’s liquid, it’s transparent from a valuation standpoint,” Vanguard Super managing director Daniel Shrimski tells The Australian.

“You know what you’re going to get in your portfolio. There’s no lack of transparency.”

Daniel Shrimski is the CEO of Vanguard Australia. Picture: NCA NewsWire / Luis Enrique Ascui

The fund is a minnow compared to major industry and retail funds, the largest of which boast millions of members apiece. AustralianSuper, for example, has three million members.

Vanguard markets itself as a low-cost option when compared to the default MySuper products where millions of Australians park their super money. But these mainstream funds, including the likes of AustralianSuper, Australian Retirement Trust and Hostplus, also have indexed options — and their fees are far more favourable.

The default balanced option at AustralianSuper costs between $387 and $722 a year for members with balances between $50,000 and $100,000.

Over at Australian Retirement Trust, members with similar balances are paying between $472 and $882 — remember that’s per year. At Vanguard, it’s much lower at between $280 to $560.

But looking at the lower-fee options and Vanguard doesn’t shine so bright. Tip a $50,000 balance into Australian Retirement Trust’s growth indexed option and the yearly fees are around $150 or so. At AustralianSuper it’s $142. Hostplus fees for its indexed options range between $135 and $150.

For a 30 year old on an average salary with $50,000 in super, the higher fees of the default options could reduce retirement balances by close to an estimated $100,000, ASIC’s Moneysmart retirement calculator suggests.

Like at Vanguard, these indexed options put 100 per cent of member money into the sharemarket, with no exposure to unlisted assets. They are popular with some advisers, including Fox & Hare founder Glen Hare, in part because of the very low fees.

“There definitely has been a skew towards index-based solutions, and that makes sense for our younger demographic because they’re really cost effective,” Hare says. His clients are typically younger workers aged up to 45.

“There’s a lot of research that says the passive index style of investing outperforms the vast majority of actively managed funds over the long term. So compounding reduced fees with outperformance means they’re certainly attractive,” he adds.

But not all index options are equal. There’s no point in tipping your super into a low-fee option that’s a poor performer or too defensive when you’re early, or even midway, in your career. Most funds fared very well in 2024 but of the passive providers, Vanguard’s option came out on top with a 16 per cent return for the calendar year. Aware Super’s balanced indexed option was close behind at 15.7 per cent, followed by Brighter Super’s 15.4 per cent. Hostplus’ balanced indexed option returned 14.2 per cent. In an exceptionally strong year for shares, all of the top 10 indexed options returned more than 13 per cent and performed better than their active peers.

Hostplus has a number of indexed options available to members including high growth, growth, balanced and conservative. Pictured is Hostplus CEO David Elia. Picture: NCA NewsWire / Nicki Connolly

“It’s a balancing act between being mindful of fees, historical performance figures and asset allocation in the product,” Hare says.

“Although it would be cost-effective to into a balanced index offering, it may not be appropriate for someone in their 20s or 30s who can take on the riskier growth option.”

Hare advises clients into both industry and retail funds, but says retail funds become more attractive or a better option to consider once a worker’s super balance is above $100,000 because at that point they tend to be lower cost than industry peers. Ethical options can also be cheaper at retail funds, he adds.

Vanguard is confident it can keep pushing fees down and, crucially, says the pressure on fees will not impact member services. The fund has not endured the service controversies faced by so many funds over the past year, including around death benefit payouts.

While many funds, including AustralianSuper and Cbus, have put the blame for woeful member services on to their administrator, Link, Vanguard uses newer entrant Grow Inc for its admin.

Grow has also managed to nab industry fund giant Hesta as a new client. Hesta is currently in the process of moving its administration from Link to Grow in a process that has shut out its one million members from their accounts for two months.

Vanguard Super is now chasing the advised segment of the market as its next engine for growth.

“We’re in the process of building the technology, the platform, that will enable Vanguard Super to be distributed to financial advisers. So advisers will be able to on-board their clients into Vanguard Super, transact on behalf of them, deduct fees, give the appropriate reporting to their clients,” Shrimski says.

The fund’s new adviser-friendly structure will be in market in the coming weeks.