Australians would be up to $200,000 better off at retirement if their super fund charged fees at a rate of less than one per cent, compared with fees charged at two per cent of the balance, says new research.
StockSpot’s annual Fat Cat Funds Report, which labels any fund that charges more than two per cent in fees as a ‘fat cat’, revealed that $7 billion in super is eroded each year in fees alone, with $150 million going to funds charging more than two per cent in fees.
While most older Australians would think this news applies mainly to younger people with decades of super earnings ahead of them, they should think again, as two per cent in fees also eats significant portions of mature super funds.
“A typical ‘fat cat fund’ charges two per cent per year in fees. Two per cent doesn’t sound like a huge sum, but over decades, the devastating impact of high fees is best seen,” says report author and StockSpot chief Chris Brycki.
“Too many Australians are in a fat cat fund and unaware of the impact that compounding high fees have on their long-term savings.
“Switching out of a fund charging two per cent per annum to one charging 0.50 per cent per annum, a 60-plus-year-old could increase the super they’ll have by $35,000.”
Mr Brycki also shared advice for people managing their own super.
“People who manage their own super via a self-managed super fund and invest in index funds have been able to beat even the largest super funds by indexing,” he said.
ANZ/OnePath topped the list for the seventh year running, with 11 fat cat funds. The same group also controls 27 per cent of the 40 worst-performing funds.
AMP also had 11 fat cat fund options, and MLC and Zurich were in third place for poorest performance, with three fat cat funds each.
On the other hand, ‘fit cats’ – funds that charged less than one per cent a year – gave their members 20 per cent more over five years than fat cat funds, the report revealed.
QSuper was listed as the top-performing fund in the country, with nine ‘fit cat’ options, followed by UniSuper, with six fit cat options, and Australian Super with four fit cat options.
“One of our golden rules of superannuation is, the less you pay, the more you get,” Mr Brycki said.
He also offered advice for the best type of fund for older Australians.
“Balanced or moderate super funds are probably best for you. Both have more defensive assets like bonds and cash to smooth your returns and reduce the potential for large losses which becomes more important as you approach retirement and once you’re retired,” he said.
“Move into a balanced or moderate fund. As you move into your 60s and near retirement age, your main aim is to preserve the wealth you’ve accumulated and ensure it still earns a decent return. Pay less than one per cent in fees. Find a fund with low fees. Remember you could save over $35,000 simply by paying less for your superannuation.
“Making a change now can still have a significant impact on your final superannuation balance.”
Is your fund a fit cat or a fat cat? Are you aware of your fund’s fees? Are they eroding your savings?
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