When it comes to your retirement income, superannuation fees can have a huge impact on the amount that will be available in your nest egg.
The news is getting better on that front, however, with superannuation fees falling on average in the past financial year.
With that in mind, you really should be checking your superannuation accounts to see if your fees are aligned with what seems to be happening in the market.
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According to analysis house Rainmaker Information, the total superannuation fees paid by Australia’s 13 million super fund members fell to an industry-wide average of just 1.04 per cent in 2019-20. This works out to $2400 per super fund member, so we are still talking about a significant chunk of your retirement savings.
The Rainmaker findings are based on a review of 2720 superannuation products offered by 168 funds, spanning 93 not-for-profit (NFP) funds, 68 retail funds and seven eligible rollover funds (ERF).
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Of the 1.04 per cent average fee paid by fund members, about 0.72 per cent is directed towards investment fees with about 0.32 per cent for administration and product-related fees.
“Fees have been falling regularly due to increasing competition, rising use of smart technology that’s making superannuation operate more efficiently and significant regulatory reforms that have led to the banning of sales commissions,” said Alex Dunnin, executive director of research at Rainmaker Information.
“These factors explain why retail funds are lowering their fees the fastest. But it must be acknowledged that they are just catching up with the NFP super fund segment that has been charging lower fees for a long while.
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“Nevertheless, as a result of these fee reductions, Australia’s lowest cost super funds are now charging fund members as little as just 0.6 per cent. Long gone are the days when super fund members had to pay fees of 2 per cent or more.
“If consumers want sharply priced superannuation there are many products for them to choose from, whether they wish to use a not for profit or retail super fund,” said Mr Dunnin.
“With the increase in super fund merger activity, fees are likely to continue to fall due to scale benefits and an increase in activity to compete with the resulting lower fees,” he said.
The Rainmaker study also found that not-for-profit funds offered the lowest cost superannuation with an average total expense ratio of 1.07 per cent, compared to 1.31 per cent for retail funds.
NFP funds were found to charge an average 0.32 per cent less than retail funds for administration, but retail funds were found to charge an average 0.09 per cent less for investment fees.
Members pay different fees depending on their product type:
- Workplace funds, those used by employers, charge an average 1.12 per cent.
- Personal funds, that members can join as individuals, charge an average 1.26 per cent.
- Retirement funds, for members who have retired, charge an average 1.12 per cent.
- Self-managed super funds (SMSF) charge an average 0.77 per cent.
While it is great news for fund members that super fund fees are falling, Mr Dunnin said “in an environment where super fund returns are under pressure and the Australian economy is in a COVID-induced recession, we need to ask whether super fund fees should be even lower.
“For example, given investment costs account for two-thirds of super fund fees, switching from active investment management to indexed investment management could cut fees by nearly two-thirds from 1.04 per cent down to 0.44 per cent.
“But if this reduces long-run investment returns this could be counterproductive, plus switching to primarily indexed investments could make superannuation more linked to the fluctuations of listed markets,” said Mr Dunnin.
Do you know what fees you are being charged by your superannuation account? Would you switch super accounts based on the fees charged by your fund?
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