When comparing superannuation funds, there are many factors to take into account. One of the most important to look out for is the fees. Whether it’s to cover the cost of managing your super account, insurance premiums, or switching investment strategies, there are many types of fees super funds can charge.
As super fees are deducted from your super balance, rather than a bank account, it can be easy to forget about them. However, they do have a sizeable impact on your retirement nest egg. According to a Productivity Commission report:
This is why it’s important to consider the fees your super fund is charging and the impact it has on your investment returns.
Below, we’ve put together an explainer on super fees including the different types there are and how to find out how much your super fund is charging.
How do I find out how much I’m paying in super fees?
There are a few ways you can find out how much your super fund is charging in fees. We give a quick rundown of each below:
- Product Disclosure Statement (PDS): A product disclosure statement (PDS) is a document that details the fees included and how they are applied. You can find the PDS on the provider’s website.
- Contact the super fund: One way to find out how much you’re paying in fees is by contacting the super fund directly. Generally, they’ll ask you to quote your membership number and then provide you with a breakdown of your fees.
- Look at your account statement: Have a look at the past couple of account statements which should include the fees charged. Generally, you can find this by logging into your account online.
What are the different types of super fees?
There are various types of fees that super funds charge. These include, but are not limited to: administration fees, advice fees, buy/sell spread, indirect fees, insurance fees, switching fees, and performance fees. Let’s go through each in more detail below:
An administration fee (also called a member or management fee) is a fee that pays for the general administration and operational costs of the super fund. It also includes the cost of managing your super account. For example, the fee can be used for distributing account statements and recording super contributions. Administration fees are either charged as a fixed fee or a percentage of your account balance (or both).
An advice fee pays for the cost of any advice services used through a super fund. While many funds typically offer general advice for free, you may be charged a fee if you receive more personalised advice from a licensed financial advisor.
A buy/sell spread fee covers the difference between the buying and selling price of investment units. For example, if you (or your employer) make a contribution to your account, switch investment options, or make a withdrawal, the buy/sell spread fee covers the transaction cost incurred.
Indirect fee (or indirect cost ratio)
Many super funds charge what is called an indirect fee or the indirect cost ratio (ICR). This covers the indirect costs of managing your super fund. It can also cover the cost of paying external investment managers by the super fund. Keep in mind that the ICR might vary between investment options within a super fund.
Under Federal Government legislation, superannuation funds are banned from charging customers an exit fee for switching super funds. Previous to this, super fund members were being charged nearly $52 million a year in exit fees.
Generally, when you open up a super account, you receive default cover for life insurance (death cover), total and permanent disability (TPD) insurance, and/or income protection. An insurance fee pays for the cost of insurance premiums. The fee amount will depend on the level of cover and the type of super fund you are with.
Investment switching fee
Some super funds charge an investment (or switching) fee for when you change investment options. For example, if you switch from a defensive investment strategy to a balanced investment strategy, you might be charged a switching fee. In some cases, your super fund might charge a buy/sell spread fee instead of a switching fee.
A fee might be charged by the super fund’s investment manager if they exceed certain performance targets or benchmarks. A performance fee can be calculated in different ways but the most common is a percentage of the investment returns.
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Oiyo is a consolidated online resource, we are not financial advisors. We work with a range of industry professionals and compliance check our articles to ensure factual accuracy. However, we do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information and ideas presented in this article relate to your unique circumstances.