If you’re looking to maximise the returns from your super fund when you retire, and let’s face it who isn’t, this article could be of benefit.
When looking at which fund to be a member of many people look at the risk profile of various super funds, they’ll look at the rates of returns, but those same people will often not make as rigorous an examination of the fees a fund charges.
Over the long term the fee structure of your super fund can have a major impact on your return. A key thing to realise is that fees are not standard across funds
So what are the main kinds of fees?
First up super fund fees are charged in two ways, either a dollar amount or a percentage.
- There are Member Fees, which are fees charged for the general administration of keeping your fund
- Contribution Fees, charged for admin expenses relating to receiving and investing your contributions
- Management or Investment Management Fees, for managing your investments, these can also vary for different investments.
Those are the main fees that you’ll commonly encounter, but there is also what’s known as secondary fees.
- Establishment Fees, an admin fee charged for setting up your super account within a fund.
- Contribution Splitting Fees, charged when you split of some of your contributions to send them to your spouse’s fund.
- Performance fees, paid if your investments perform above market benchmarks.
- Withdrawal or termination fees, Charged when you exit funds from your account, i.e. retirement or rolling over to another fund.
- Investment Switching fees, charged if you change investment options within your existing fund.
- Family Law Split Fees, charged to split your super after a separation and family law court order.
- Issuer Fees, charged by the investment issuer for overseeing the fund
- Expense recovery fees, out of pocket expenses your trustee can recover from your super account.
Let’s look at an example of someone choosing a fund with lower fees.
Lucy is 30 and earns $50,000 per year working for a charity organisation. She already has $20,000 in her super. After shopping around for another super fund, she changed to one with only 1% management costs. Her old super fund charged 2.5% (including adviser fees).
- By changing to a super fund with lower fees, Lucy will have $81,000 more in her super when she retires at age 65. Her super account balance will be $336,000 instead of $255,000.
- Assumptions: Calculated using the superannuation calculator, assuming 8% returns, no other fees, no insurance premiums and no changes to salary.
That might make a pretty big difference to Lucy in her retirement and making the right decisions on this front could make a big difference to you too.