Super fund fees and charges you need to know about

Nobody likes paying fees, particularly when you can’t see what you’re paying for. When it comes to your super fund, it’s worth learning a bit more about the fees you’re paying and why.

As the Productivity Commission has pointed out, fees are “the biggest drain on net returns” for super fund members and can have a “substantial impact on members … by the time they reach retirement.”

It’s worth pointing out here that fees should never be looked at in isolation, as the most important measure of your fund’s performance in the long run is net returns after all fees and taxes.

The actual fees you pay will depend on the type of super fund you are a member of and which investment option you’ve selected. But if you want to wise up about the super fees you’re paying, check out our guide below.

Why fees matter to your super balance

How much you pay each year in fees on your super savings will have a big impact on the amount you have to spend in retirement.

The Productivity Commission has estimated an “increase in fees of just 0.5% can cost a typical full-time worker about 12% of their balance (or $100,000) by the time they reach retirement.”

With that in mind, it’s worth regularly checking what fees you’re paying to ensure you’re not paying too much, as many super funds compete to offer the lowest fees.

If you want to learn more about the fees your super fund is charging, a good place to start is to check your fund’s current product disclosure statement (PDS). Every fund is required to set out their fees in the same standard table, using the same names for each fee. This makes comparison much simpler. However, if you have not chosen the default investment option and insurance, you may need to look at separate investment and insurance guides. There may also be a separate guide to additional fees. These guides are published separately because they contain too much detail to fit into the main PDS document, however they are legally part of the PDS.

Armed with this information, you can compare the fees you pay with other super funds. If your balance is invested in your fund’s MySuper investment option, there are some additional sources to help you out:

• Your fund’s MySuper dashboard. This contains a statement of fees and costs for a member with $50,000 invested as well as information on past returns (including how those returns compare with the target) and the level of investment risk. To find it, search for ‘dashboard’ on your fund’s website
• The ATO’s YourSuper comparison tool. This allows you to compare your fees with other funds’ MySuper options based on your personal super balance (rather than just a $50,000 balance example). The comparison tool will display investment returns at the same time to help with your choice.

Super fund fees and charges you need to understand

1. Administration fee

This account management fee represents the cost to your super fund of looking after the various administrative tasks relating to your super account, such as sending out account statements, providing online services and recording your account transactions and contributions. If your fund provides intra-fund advice it also covers this service.

Your fund will describe this fee as ‘Administration fees and costs’ in the ongoing fee section of your statement or PDS.

Super funds usually charge their administration fees as a fixed fee, percentage of your account balance, or a mix of the two.

2. Investment fees and costs

These fees represent the costs involved in professionally managing the investments your super fund makes on your behalf. Investment fees will vary depending on the investment option you choose.

Investment costs include service fees paid by the super fund to internal and/or external investment managers. Each investment option within a super fund has different investment fees, as the costs involved in investing in different asset classes vary. For example, the charges for an international share option will be higher than a cash investment option, as the international share option involves paying fees to professional share managers.. 

The transaction costs incurred when fund managers buy and sell assets are shown separately from other investment management costs. Transaction costs can include items such as brokerage (to buy and sell shares), stamp duty, clearing costs and investment consultant fees for conducting due diligence on a selected investment.

Investment fees (and transaction costs) are generally deducted before the unit price or crediting rate is set – so the return you receive is net of these expenses and you won’t see them taken from your account balance. Less commonly, there is an additional charge deducted from your balance. The fees and costs summary in your PDS explains this in the ‘how and when paid’ column.

The investment fees your fund publishes reflect the actual costs of the investment option in the past – often the most recent financial year for which final records are available. The actual fees you pay will vary from year to year – although not by a large amount.

Remember, if you are not in your fund’s default investment option, or if you would like to see the investment fees for other options, you’ll need to look for the separate investment guide to find the details of how all the available options are invested and what they cost.

3. Buy-sell spread

A buy-sell spread exists when the price to buy a unit in the fund’s investment option is higher than the price you would receive for selling that unit on the same day. The price difference covers the transaction costs associated with buying and selling the underlying investments.

The buy-sell spread will be different for each investment option your fund offers.

Many funds don’t charge buy-sell spreads at all because they will use other transactions to minimise the trades that are necessary. Imagine you’re switching your balance out of an option that other members are making contributions to. Rather than selling investments, the fund will reallocate your share to the members that made contributions. This is possible if the fund is pooling assets among members, as most publicly available funds do. Retail funds (particularly those offering hundreds of investment options) are more likely to allocate investments to individual members and to charge buy/sell spreads. In these funds you may also notice tax on capital gains when you switch investments.

4. Investment switching fee

An alternative to using buy/sell spreads is to charge a separate fee for changing investment options. Some super funds offer free switching, while others offer one or more free switches each year and then charge a fee for any subsequent changes.

Buy/sell spreads and switching fees may only be charged on a cost-recovery basis – i.e. your fund can’t charge you more than the transaction costs them to process.

5. Financial advice fee

If your super fund charges this fee, it’s usually deducted directly from your super account and is to pay for personal financial advice you have sought from a licensed financial adviser – either over the phone or in person – about your super and financial position.

There may be a cap on the amount your fund allows a financial adviser to charge you per year. If you’re paying regular advice fees you will be asked to sign documents annually to confirm you are still receiving advice and are happy to continue to pay.

6. Expense recovery fee

If the super fund is required to pay expenses on your behalf as a member, your super account may be charged a fee to help recover the amount. This could cover items such as fees paid to the trustee company that oversees the fund.

7. Contributions splitting fee

If you decide to take advantage of the potential tax advantages of splitting your annual concessional (before-tax) super contributions with your spouse, the super fund may charge you a fee to move some of your super contributions into your spouse’s account.

8. Family Law Act information request

This fee is charged if you request information about a super account under the Family Law Act.

Many funds also charge a family law splitting fee. This applies if, after a separation and Family Law Court order to split your super with your former spouse, your super fund is required to split your super account and move the money to your former spouse’s super account.

9. Insurance premiums

When you join a super fund, you usually receive default insurance protection for death and total and permanent disability (TPD). Some funds also provide income protection insurance.

You are required to pay for this cover, so the premiums are charged against your super account balance on a regular basis (often monthly).

The premium cost varies depending on the type of super fund and level of insurance protection you hold (death only, death and TPD, income protection or all three types of insurance cover).

Frequently asked questions

Fee disclosure can be confusing, so we’ve addressed some common questions.

Q. My super fund says they give me a ‘tax credit’ on fees and insurance premiums, what is that?

Costs (including insurance premiums) are tax deductible for super funds. To give you your share of the benefit of this tax deduction, some providers give you a credit. The amount you will receive is usually 15% of the fee or premium that was deducted from your account because this is the tax rate for the income of super funds. Depending on the administration system, you will see this amount credited separately as a transaction or it will reduce the contribution tax deducted from your account.

Q. What does it mean if some fees are paid from fund reserves?

Super funds are permitted to maintain reserves of funds that have not been allocated to member accounts for various purposes. One permitted type is an administration or general operational reserve. This reserve can build up from administration fees that were charged in the past and not spent.

Funds can use this reserve to invest in new features and services for members such as digital tools without having to increase regular administration fees or charge a special levy. It may also help to manage the costs of a fund merger without passing on those expenses.

If your fund has used reserves to pay for some of the costs of providing services to you, this will be disclosed in the fees and costs table in your PDS. These costs have not been charged to your account but have come out of the reserved pool of money set aside from administration fees charged in the past.

Q. I have heard it is best to reduce investment management costs by not paying for active investment management. How can I do that in my super fund?

There are two ways to avoid fees for active investment management in your super.

The first is to go with a super fund that permits you to choose investments directly and pick index exchange-traded funds (ETFs) that replicate the returns of the ASX or another index such as the S&P 500 from the US. 

The other is to choose a fund that offers pre-mixed diversified indexed options, such as HostPlus.

Q. I can see other fees on my statement that are not in SuperGuide’s list. Why is that?

Because of the large number of super products available, it isn’t practical for our guide to cover all the possibilities. We have described all the main fees that are commonly charged.

If your fund charges many other fees, that could be a red flag that it is an unnecessarily expensive product.

You should also know that super funds are no longer permitted to charge entry or exit fees of any kind other than buy/sell spreads, so you should not see any establishment fees or fees for withdrawing all or part of your balance.

Where to next?

Minimising fees is an important part of getting the best growth out of your super and maximising your retirement balance.

When you’ve got to grips with your fund’s fees the next step could be making a comprehensive comparison with any other options you’re considering. Our 7-step guide can help.