Do you have a large super fund balance? If so, good for you, but with that healthy balance comes a warning from experts – beware of uncapped fees.
A recent in-depth analysis of super funds found many Australian superannuation funds do not have a cap of any sort on administration fees. This leaves fund members with large balances vulnerable to excessive costs, many of which should be entirely avoidable.
The Nine Media stable of newspapers (including the Age and Sydney Morning Herald) recently commissioned SuperRatings to conduct a fee analysis. The ratings group audited more than a hundred different super funds, and found that roughly a third had no cap whatsoever.
According to SuperRatings, those at greatest risk from these uncapped fees were those with big super balances. Joshua Lowen, Insights Manager at SuperRatings, said, “For members with higher balances, the impact of fee caps can be significant.”
Mr Lowen conducted the analysis himself. While his revelations were of some concern, he said, fund members should take some time to consider all aspects of their superannuation before ‘jumping ship’.
The anatomy of uncapped fees in superannuation
The term ‘uncapped fees’ is more or less self-explanatory. These fees continue to grow in line with the fund’s balance rather than being limited to a certain level.
In many ways this is not a bad thing, because it reflects a healthy growth of your account funds. Copping an uncapped fee, if it’s relatively small, for big growth is a price many think is well worth paying.
But if we could get the same growth for a smaller cost, would that not be better still?
SuperRatings’ analysis found that 70 per cent of the funds limit or reduce the impact of administration fees on larger balances. But even amongst that group of funds, there were some limitations to keeping fees down.
Mr Lowen found that more than 20 of these funds have caps set so high they were beyond the reach of many members. In such cases, the caps only took effect for accounts with balances of more than $1 million.
Other funds had a far simpler structure. Such cases had administration fees that were charged up to a certain dollar value each year, regardless of account balance.
Between those extremes come the funds that have tiered structures. As the description suggests, these funds have a scale of fees based on your fund’s account balance. Many have an applied percentage fee which is reduced when a balance exceeds a certain size.
A significant majority of the funds with uncapped fees are what’s known as ‘retail’ funds. Essentially these are funds that funnel profits to shareholders.
Working out what’s best for you
Because of the number of different fee structures employed by various funds, working out which fund will produce the best result for you is no easy task. Banks and other lending institutions are now subject to mandatory comparison rate publishing rules, making comparisons easier for borrowers.
Super funds have no such legal requirement. At least, not yet. The Australian Prudential Regulation Authority (APRA) is aiming at legislation compelling funds to better explain how fees are set.
But that appears to be some way off. Until then, making sure funds aren’t going too far with their fees will remain basically the job of fund members.
Do you have a large super fund with uncapped fees? How does it stack up? Let us know via the comments section below.
Also read: Super products ranked the worst of the worst
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