Superannuation, the fees charged and the impact on your performance has been in the news a lot over the last number of weeks and will continue to be so until the government deals with the outcomes of the Banking and Superannuation Royal Commission.
The real question on everyone’s mind is how much do I pay? And am I getting value for it.
It is little surprise that we do pay fees, but what are all the fees for? A superannuation fund account pays for numerous tasks, fees and responsibilities. Let’s break them down for you.
Trustee of your Superannuation Fund
This is a responsibility, of which the sole concern is for the members of the fund. At a self-managed super fund level, this is generally the members themselves. At a corporate or industry fund level, this is a board of trustees, who need to be compensated for both their time, skill, knowledge and responsibility. It is these people who need to answer to members when actions are taken that are not in the members best interests. In funds where this fee is charged separately, the cost is generally between 0.10% and 0.15% of your money each year.
This is the fee for administering the complexity of the superannuation legislation as well as the movement of millions of dollars on an almost daily basis. It also covers taxation obligations, audit costs and the systems that hold all this information.
Administration costs will differ based on the complexity of the superannuation offering. If a fund has only a few investment options, bundles all monies together for taxation purposes and doesn’t allow individual account tax deductions/credits for fees, insurances or franking credits then administration fees will be cheaper than a fund that offers a large amount of choice, and treats your account individually for taxation.
Administration costs vary greatly because, on top of the above reasons, many funds also bundle this cost into the cost of investment (see the next fee), and others don’t.
For those that publish this cost, it can range from $1.50 per week plus 0.10% of your funds, through to $500pa plus 0.80% of your funds.
For Self-Managed Super funds, this fee is what you pay your accountant and auditor.
This seems straight forward… except there are so many different options. This fee is charged by your investment manager or fund manager. If you have invested in managed funds this fee is taken before your returns. If you buy shares directly, then there is no ongoing investment fee only transaction costs.
Many superannuation funds can offer low administration costs (see above), because either the fund or an associated entity earns a healthy fee from managing your money.
Commonly investment management fees range from 0.10% through to 1.80%. In addition, some fund managers can have performance fees that can increase you fees up to 6-7% each year (if the manager makes the fund perform). This sounds like a good idea, but investors need to be careful and understand what hurdle the manager needs to beat to take this additional fee.
If an investor buys or sells shares it is understood that there will be transaction or brokerage costs to do this. These fees are explicitly charged if your superfund allows you to purchase shares.
What is less well known is that managed funds within your super also charge a transaction fee. This fee is not explicit, it is simply taken from your investment before you get your money back. These fees range from 0.10% to 0.50% for each buy or sell!
Insurance costs are individual to your account, even though it is possible that you never actually asked for the insurance cover. Just because the cost is individualised, it doesn’t mean the insurance is. In most Industry and Employer Superannuation Funds, the insurance cover provided is worked out on either your age, or a multiple of your salary. It is also likely that this type of insurance will start to decrease once you reach a certain age (usually 40 or 45). This keeps the costs down but may not be appropriate to your needs.
Personalised insurance is not necessarily more expensive and will generally have benefits that are more suited to you. In addition, some insurance is tax deductible to your superannuation fund, but not all superannuation funds return this deduction directly to your account.
No matter which type of insurance you have, the cost of this insurance is impacting your retirement savings.
Finally, advice fees have an impact on your superannuation fund, and deep consideration needs to be had for whether you should pay for your advice from your own pocket or from your superannuation.
Superannuation is your money, and it is your retirement. The only way to get banks, and others to stop dipping into your super is to understand the costs and the value you get from those costs. There is no right answer, only a right answer for you.
John Forwood and Forwood Planning Pty Ltd ATF Forwood Planning Trust are Authorised Representatives (No. 1007813/1238510) of MyPlanner Professional Services Pty Ltd AFSL 425542 ABN 51 159 696 830.
For more information contact Forwood Planning on 07 3103 3038.