Inflation. Rising living costs. Mediocre or poor superannuation investment performance. These are just some of the factors that can inhibit the eventual total of your retirement savings, and leave you on the wrong foot when it comes to stepping into retirement.
But did you know your superannuation fund's worst enemy can sometimes be your own super provider? We're talking specifically about super fees. According to an April 2014 Grattan Institute report — Super sting: How to stop Australians paying too much for superannuation — high super fees can shave off more than 20 percent of someone's retirement superannuation depending on age! To put that into concrete numbers, a 50-year old now might lose around $80,000 by the time they retire, while a 30-year old could lose more than a quarter-of-a-million dollars!
Australian superannuation assets under management continue to grow at a rapid rate. According to the Association of Superannuation Funds of Australia, total assets reached a new record of $2.05 trillion by the end of March 2015, increasing 14.3 percent over the year previous.
Let's delve into super fees in a little more detail and find out more about these fees.
What do Australians pay super fees for?
Australians may pay a number of different fees as part of their superannuation accounts, including:
- Membership fees, to cover the cost of keeping your account and typically charged weekly
- Administration fees, which account for the cost administering a fund and can depend on the type of investment
- Investment or management fees, which are charged by fund managers when they invest your super and are usually charged as a percentage of your super balance
- Performance fees, charged by fund managers if your super has a particularly good year and exceeds expectations
- Adviser service fees, charged when you seek out investment or financial planning advice
- Insurance premiums, to provide you with life and other insurances
- Various miscellaneous fees, such as exit fees for partial withdrawals or contribution splitting fees
According to the Grattan report, all of this adds up to make fees for Australian superannuation higher than in most other developed countries. Unfortunately, these extra charges can erode your retirement savings. As per Grattan’s report, funds with higher fees do not necessarily generate higher gross returns, and actually, lower fees rather than past performance tended to be a better predictor of future fund performance.
Yet fees have only grown and grown. While account holders paid around $870 a year for these charges in 2004, that number grew by a whopping 51 percent to more than $1300 in 2013, according to the Grattan report.
What can you do about it?
If you're concerned about the amount of money you're losing in excessive super fees — as well you should be — then you can do something about it.
First of all, check how much you're paying. Remember that piece of paper you got sometime in last July or August and promptly stowed away in some sun-deprived nook of your study? This is your statement, and it should list how much you're losing in terms of fees.
If you can't find your statement, or you need more detailed information, give your super provider a call, or even visit their website. Most super fund providers are relatively open about how much they charge in fees, particularly if they are on the lower end of the scale.
This information may not be particularly useful in isolation, so you'll want to compare it against what other funds offer. The easiest way to do this is to go to a comparison website to see how another fund's fees stack up against your own. If you do intend to switch providers, just remember that the one with the lowest fees may not necessarily the best choice — you'll want to look at other metrics, like performance, flexibility, investment options, the cost of leaving your current fund, insurance and any other product features or benefits you may gain or lose, too.
Finally, you could even look at the option of starting a self-managed super fund (SMSF). According to the Grattan report, fees have seen a slight drop in recent times as SMSFs have taken a bigger share of the superannuation market. However, if you are considering about going down the path of being your own SMSF trustee, you really do need to know what you are doing!
Advice contained in this article is general in nature and not specific to your particular circumstances. Before making an investment decision you should consider your own financial situation and the relevant Product Disclosure Statement/s. We also recommend you seek advice about your own particular circumstances from a licensed financial adviser. Past performance is not a reliable indicator of future performance.