The fees and costs associated with different funds vary significantly and the fees that you pay on your super can have a significant impact on your retirement savings. Therefore, it’s important to know and understand the fees you pay on your superannuation fund because they can have a significant impact on the performance of your account over time.
The concept of the time-value of money comes into play when understanding the implication of fees in the long term. The time-value of money states that money today has a higher worth than money tomorrow as the money can be used or invested in the present, having more potential for growth. Therefore, the more time the money stays invested, the more the fees will impact the savings.
For example, a superannuation fund that charges a higher management fee may generate lower returns than a fund with lower fees, which means that your savings may grow more slowly. Similarly, high investment fees can also reduce the return of your investment.
Research conducted by the Productivity Commission suggests that an increase of fees by just 0.5% could equate to a cost of 12% of an average full-time employee’s super balance or $100,000 by retirement.
Types of Superannuation Fees
Within each superannuation account, there are several different types of fees that can be charged and can vary between different products. Some of these fees may be charged as a percentage of the account balance, while others may be charged as a flat fee. It is a good idea to read and understand the fees that are associated with your superannuation account as it can have significant impacts to the performance of your account over time.
These fees can include:
- Administration fees: These fees cover the cost of managing the account, such as record-keeping and the sending of statements.
- Investment fees: These fees cover the cost of managing the investments within the account, such as the management of the underlying assets.
- Buy-sell spread: This cost is calculated as the difference between the price at which an investment is sold and the price it is bought at.
- Insurance fees: Some superannuation funds offer insurance as part of the package, and these policies may have their own fees.
- Advice fees: Some funds charge additional fees for providing financial advice to account holders.
What fee structure is right for you?
It is important to be aware of the fees associated with your superannuation account and to compare the fees of different funds before making a decision. While it may be tempting to choose a fund with lower fees, it is important to also consider the investment options, insurance coverage, and the overall performance of the fund when making a decision.
Knowing the fees and being aware of the trade-offs associated with the fees can help you better evaluate the overall quality of a superannuation fund, as well as make more informed decisions about your own retirement savings.
If you would like to better under the fees that you are being charged by your superfund, a good place to begin is the superfund’s website or its Product Disclosure Statement (PDS). The Australian Taxation Office (ATO), has provided Australians with a tool to compare your current super fees to the fees of other funds, click here to read more.
If you would like tailored, transparent, commission-free financial advice regarding your insurance, super or current investment strategy, please click here to organise a complimentary 20-minute meeting with an EPG Wealth adviser.