Explained: Understanding your Super fund’s fees and costs
Explained: Understanding your Super fund's fees and costs.
Sometimes called a 'member fee', this fee goes to your super fund. It may be a percentage (0.5%), a flat amount ($10 per month) or capped (0.5% up to $1,000 per year). This is deducted directly from your super account.
If you have more than one super fund, you could be paying multiple administration fees and not even realise!
These are the fees the super fund charges to exercise care and expertise, it is usually stated as a percentage (e.g. 0.5%). Some super funds don't charge an investment fee since the fees for investing are often included in the indirect cost ratio.
These are the fees paid by your super fund to the companies that do their investments.
For example, in a 'balanced' investment strategy your super fund will get an investment firm to invest your money in a range of assets like shares, property, bonds, and cash. The indirect costs ratio is an estimate of the total fees to pay the investment firm.
These fees can vary slightly from year-to-year as they often include performance fees (for good investing performance) and other costs associated with the investment.
Important: Like the investment fee (above), these fees can vary depending on which investment strategy you choose (e.g. growth, defensive, capital stable, etc.).
For example, two people can have the same super fund but choose different investment strategies and therefore have different yearly costs.
Example: $50,000 super balance
|Administration fee||$100 per year||PLUS|
|Investment fee||0.5% ($250 on $50,000)||PLUS|
|Indirect Cost Ratio ('growth' strategy)||1% ($500 on $50,000)||EQUALS|
|TOTAL||$850 per year|
Watch out! Here are some other fees
Some funds charge no fees to switch between investment strategies (e.g. from ‘growth’ to ‘balanced’), but some funds will. It’s normally a flat rate (e.g. $40).
Also known as ‘financial planning fees’. This can be a flat fee (e.g. $300) or percentage (e.g. 1%). Sometimes, part of these fees can be deducted from your super account (e.g. for the advice relating to your super fund). You may also be asked to pay other fees or commissions for the advice and recommendations.
These are often stated as a percentage (0.1% / 0.1%). The buy/sell spread can be used by super funds to recover the costs incurred to buy and sell investments. They are applied each time you contribute to the super fund, change investment strategy or withdraw your money.
These small costs are taken out of the money that is used to buy and sell.
You can pay for some insurance cover inside super, with the premiums deducted from your account. Some funds have default amount of cover, but the level of cover and costs might vary.
For example, you may have default level of life insurance cover inside super. If you have multiple super funds, you may be paying for many different policies!
Some funds also charge you for leaving them, this is deducted from your account when you leave. It can be a flat rate (e.g. $50) or percentage (0.2%).
Often, these are fees for specific actions taken by members, like information requests in a family law agreement, contribution splitting or a failure to make payment. Sometimes, these are paid from your super account, other times you (or whoever requests the information) must pay for them out of your own pocket.
Common Questions About Super
The best way to tell if you are paying too many fees and costs for super is to compare it with other super funds.
Look at your current strategy (e.g. ‘balanced’) and compare it to another super fund using a similar strategy (e.g. ‘balanced’). Does your fund charge more or less? Remember, small differences now can make a HUGE difference when you retire.
When you compare super funds, remember that the fees can vary from one super fund to the next because the investment strategy may be different. Make sure you are comparing apples (the cost of a ‘balanced’ strategy) to apples (the second of another ‘balanced’ strategy).
In addition to fees and costs, you should also consider if the new fund offers the same, better or worse features.
How to compare
You should be able to find all the information you need — and an example of the fees and costs — in your super fund’s PDS.
To find the PDS, do an internet search for: “[your super fund’s name] PDS“. Then, search for a competitor fund to compare: “[super fund #2 name] PDS“.
Are your fees lower or higher?
Compare it to another fund.
Remember, this is your future we’re talking about.
You should be able to find all the information — and an example of the fees and costs — in your super fund’s PDS.
To find the PDS, do an internet search for: “[your super fund’s name] PDS”. Then, search for a competitor fund to compare: “[super fund #2 name] PDS”.
If your super fund allows you to pick and choose which shares, Exchange Traded Funds (ETF) and Listed Investment Companies (LIC) you want to buy, you may pay other fees, like brokerage. Brokerage is usually stated as a flat rate for small amounts ($20 for investments up to $10,000) or as a percentage for large amounts (e.g. 0.1% for investments over $100,000).
In addition, ETFs and LICs may charge yearly management and/or performance fees.
It’s smart to read the Product Disclosure Statements or visit the ETF/LIC operator’s website before investing so you understand the strategy and fees for the investment.
Test Your Knowledge
Jenny Jingle's super fund charges 2% in yearly fees (including investment fees, administration and indirect costs). Billy Bob's super fund charges 1.75%. Whose super fund is better?
High fees and costs inside super can have a huge (bad) impact on your retirement savings. However, there is no way to know for certain if Jenny's super fund is better than Billy's - we need more information.
Max Masters asks you what a 'switching fee' is. You (correctly) reply:
Sometimes (not always), your super fund might charge a 'switching fee' to change investment strategies.
Your friend, Devon Delirious, told you that he read on a blog, "super fund buy/sell spreads are the new alternative to peanut butter." Devon...
A super fund's buy/sell spread is used to recover (from members) the costs incurred by the super fund to buy and sell the investments. It is typically stated as a percentage.
Greg Grasshopper is known for bouncing from one super fund to the next. How could Greg compare the fees and costs of different super funds?
The best way to tell if you are paying too many fees and costs for super is to compare it with other super funds. Look at your current strategy (e.g. 'balanced') and compare it to another super fund using a similar strategy (e.g. 'balanced'). Does your fund charge more or less?
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