Know Your Superannuation Fees? It Could Save You $500,000
June 2, 2015 .

We know – superannuation is boring. Most of us can only access it in 10/20/30/40 years’ time so it begs the question – do we even need to care about it now?

The big banks and financial institutions are aware that a lot of people would answer “no” to this question which results in Australians paying close to $21 billion in superannuation fees each year. In fact according to a study by the Grattan Institute, administration costs alone reduce the average superannuation balance by $40,000.

The chart below highlights the affect that differing superannuation fees can have on life in retirement – it compares two funds that have the same level of returns (8%) but have a 1.5% difference in fees. It assumes a couple who are aged 40, already have $100,000 in super, a household income of $140,000 and inflation of 3%:

Starting with the same balances at age 40, people invested in fund A will be $500,000 richer in retirement with a 1.5% difference in fees.  Let us say that again – five hundred thousand (or 50 million yen or 2 second hand Ferraris). What this means is that people who have their super in fund A will have enough to comfortably live in retirement well past the age of 90 while people in fund B will run out of money at about the age of 80. Think about what that means – 10+ years living without money putting burden on your family all because of unnecessary fees you have been paying all your life.

So what are the types of fees super funds charge?

                Superannuation fees typically fall into 3 categories:

  1. Membership fee: a fee to be one of their members
  2. Administration/account keeping fee: a fee for managing your super fund account to cover admins cost
  3. Management expense ratio(MER)/Investment cost: a fee charged by Fund Manager as opposed to your super balance

This table below shows the differences in fees of the 5 biggest superannuation funds (by assets held) in Australia:

Fee's charged by Australia's biggest super funds

ProviderMembership fee p.a.Account KeepingInvestment cost
Australian Super Balanced$78Nil0.59%
HOSTPLUS Balanced$78Nil1.01%
VicSuper FutureSaver Growth$780.28%0.49%
Care Super Balanced$780.20%0.92%
AMP Balanced Growth$104.4Nil2.11%

As you can see the fees vary massively even in this very small sample size – given there are over 1,500 investment options for your super (excluding SMSF’s) the odds of you finding the most suitable one is very slim.

And that is where a Plenty will be able to help – while traditional advisers might be able to tell you where your super is best kept, their views are often conflicted and they will charge you $5,000+ for this advice. Plenty advises you on every aspect of your financial lives, including superannuation, for free – find out more about us here.

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