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Hidden super fees costing Australians

Hidden super fees costing Australians

Australians depend on their superannuation funds to help them ensure a secure retirement. But new research suggests Australians could be losing out precious savings due to hidden fees. 

Last year, the Australian Securities and Investment Commission (ASIC) reviewed fee disclosure practices in the superannuation industry, and the results weren’t pretty. 

“It is crucial for super and managed fund issuers to disclose fees and costs on a consistent and comparable basis in order for consumers to make meaningful comparisons between products,” said Greg Tanzer, ASIC Commissioner at the time. 

“Our review shows that there is some inconsistency at the moment and we will work with industry to improve fee and cost disclosure more generally.”

It seems that, along with regular costs and expenses, Australians’ retirement savings are increasingly facing a challenge from their own superannuation accounts. 

Investors handicapped by inconsistent disclosures

The ASIC’s report, titled Fee and Cost Disclosure: Superannuation and Managed Investment Products and released in July 2014, highlighted a number of cases where disclosure of fees and costs was inconsistent with existing super guidelines. One such example surrounds the reporting of performance fees. 

It’s typical for an issuer to pay a performance fee to their investment manager when the performance of a super fund outdoes its pre-agreed target. However, as the report notes, in some cases these fees are estimated based on the expected level of fees in a given year, while in other cases performance fees are not being disclosed as a separate charge, because they are taken out of a trustee’s fees to pay the manager. 

Also highlighted by the report was the issue of fees net of tax being incorrectly disclosed, as well as fees relating to underlying investment vehicles not being disclosed at all. 

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Dealing with super fees

Superannuation accounts come with a variety of different fees. Some of the more typical fees include member fees, which are charged in order for you to keep your super account, contribution fees, which are deducted from each of your contributions to cover the expense of investing them, and investment management fees. 

You can also be charged exit fees, for when you leave a plan or withdraw money, and switching fees, for when you swap out of an investment option.

With fee transparency still requiring improvement, it’s not easy for investors to factor in fees into their superannuation calculator, or to detect what kind of fees they are being charged. One way around this is to read a fund’s annual report and member statement – if they’re relatively vague and lacking in detail, it could be a warning sign. 

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Learn more about superannuation

What fees do superannuation funds charge?

Superannuation funds can charge a range of fees, including:

  • Activity-based fees – for specific, irregular services, such as splitting an account after a divorce
  • Administration fees – to cover the cost of managing your account
  • Advice fees – for personal investment advice
  • Buy/sell spread fees – when you make contributions, switches and withdrawals
  • Exit fees – when you close your account
  • Investment fees – to cover the cost of managing your investments
  • Switching fees – when you choose a new investment option within the same fund

How do I choose the right superannuation fund?

Different superannuation funds charge different fees, offer different insurances, offer different investment options and have different performance histories.

So you need to ask yourself these four questions when comparing superannuation funds:

  • How many fees would I have to pay and what would they cost?
  • What insurances are available and how much would they cost?
  • What investment options does it offer? How would they match my risk profile and financial needs?
  • How have these investment options performed historically?

What is a superannuation fund?

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

  • Retail funds
  • Industry funds
  • Public sector funds
  • Corporate funds
  • Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

How long after divorce can you claim superannuation?

You or your partner could be forced to surrender part of your superannuation if you divorce, just like with other assets.

You can file a claim for division of property – including superannuation – as soon as you divorce. However, the claim has to be filed within one year of the divorce.

Your superannuation could be affected even if you’re in a de facto relationship – that is, living together as a couple without being officially married.

In that case, the claim has to be filed within two years of the date of separation.

Either way, the first thing to consider is whether you’re a member of a standard, APRA-regulated superannuation fund or if you’re a member of a self-managed superannuation fund (SMSF), because different rules apply.

Standard superannuation funds

If your relationship breaks down, your superannuation savings might be divided by court order or by agreement.

The rules of the superannuation fund will dictate whether this transfer happens immediately, or in the future when the person who has to make the transfer is allowed to access the rest of their superannuation (i.e. at or near retirement).

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If your relationship breaks down, you must continue to observe the trust deed of your SMSF.

So if you and your partner are both members of the same SMSF, neither party is allowed to use the fund to inflict ‘punishment’ – such as by excluding the other party from the decision-making process or refusing their request to roll their money into another superannuation fund.

This no-punishment rule applies even if the two parties are involved in legal proceedings.

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Financial consequences

Superannuation funds often charge a fee for splitting accounts after a relationship breakdown.

Splitting superannuation can also impact the size of your total super balance and how your super is taxed.

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