Superannuation Fund Fees

Superannuation fund fees are the charges your fund deducts from your account each year, itemised on your annual statement. Administration fees are typically a flat dollar amount - roughly $80 to $200 a year - while investment fees are a percentage of the balance. Investment fees run from as low as 0.05 percent for an index option to 2 percent-plus for actively managed options. Transactional costs appear as the buy-sell spread when you switch, and insurance premiums are deducted monthly if you hold cover through the fund. Advice fees appear if you use the fund's adviser, charged separately on some statements.

The reason the term earns a glossary entry: fees compound with the opposite sign of returns. Every dollar deducted is a dollar that stops compounding, and over a 40-year career the gap between a 0.1 percent index option and a 1.5 percent retail option removes roughly a quarter of the ending balance. APRA publishes each fund's fees and returns annually, and the Your Future Your Super performance test fails MySuper products that return below their benchmark - a failed fund cannot accept new members. The test result is published, and it is the fastest way to see whether your fund's fees are buying anything.

Walk one year on a $100,000 balance in a balanced option charging a 1.0 percent investment fee, a $150 administration fee and a $400 insurance premium. The investment fee is priced into the unit price daily - the return you see is already net of it - while the admin fee and the insurance premium are debited from the balance across the year. Roughly $1,550 leaves the account that year regardless of what markets did. In a 6.5 percent gross year the balance grows to roughly $105,000 net instead of $106,500, and the gap repeats every year.

The comparison arithmetic is where the term earns its keep. The same $100,000 in an index option at 0.10 percent investment fee and a $100 admin fee loses roughly $200 a year - a gap of $1,350 a year between the two options on identical balances. Over 30 years at 7.5 percent gross returns, the index option compounds to roughly $850,000 and the 1 percent option to roughly $660,000: a difference of about $190,000 for the same contributions. Run your own comparison through the compare investment fees calculator.

The performance test closes the loop. MySuper products must match their benchmark return each year or they are ruled underperforming and cannot accept new members - but your existing balance stays until you move it. The test result sits on your fund's annual statement and the ATO's YourSuper comparison tool, and it is the one page worth reading before the fee table.

For an Australian reader, fund fees are the only super input you fully control: the guarantee is fixed, the returns are not, and the fee is a choice. The compounding is why the choice matters - a 1.4 percent fee gap over a 40-year career removes roughly 28 percent of the ending balance. On a $2.4 million super balance, that is roughly $670,000 forgone. APRA's annual fee statistics and the performance test make the comparison easier than it has ever been. MoneySmart's guidance is to check the total fees on your statement with the compare investment fees calculator, not just the line items.

A colleague named Brent (yes, that Brent) spent twelve years in a retail super fund charging 1.5 percent-plus because the fee looked small on the statement. The statement only showed the admin fee prominently, and the investment fee was the bigger number. It compounded in reverse the whole time. The highest-leverage thing most Australians can do is open their annual statement, find the total fees, and run the balance through the compound interest calculator. That is what the fee gap compounds into over the decades left.