What fees do I pay in my super?
You are probably paying some or all of the following fees.
- Member fees – these are administration fees that will be duplicated in multiple funds.
- Investment fees (MER) – these are the fees charged to invest your funds usually a percentage of the balance. This is often the biggest cost.
- Contribution fees – these are the fees charged to collect and invest fees.
- Adviser fees – these are the fees paid to an adviser for personal advice.
- Insurance premiums – these are the premiums paid for your insurance cover in the fund.
- Other fees – there could be other fees such as establishment fees, withdrawal fees, exit fees, performance fees, switching fees and more.
There is a wide discrepancy in total fees. A difference of 1% can mean a reduction in the final value of 20%.
Often members in the same fund pay a different percentage with those holding lower balances paying a higher percentage but lower fee. For example, 1% on a $100,000 balance is $1,000. A 0.5% fee on a balance of $1,000,000 is $50,000. Some funds have a cap on the amount of fees a member can pay.
Investment fees (MER)
These are the fees paid to the investment manager and can include a performance fee where some of the growth ahead of a specific return is retained by the manager. This is usually the biggest fee and returns usually make the biggest difference to retirement values.
Some funds charge an extra fee to collect and forward the contributions to the investment manager.
Some funds charge a switching fee to switch to another portfolio or investment option.
These are the fees paid to an adviser for personal advice. Advisers who sold a fund to an employer were often rewarded with an “advice fee” deducted every month from the members account whether or not they had received any advice. Most members had never seen the adviser or even knew about the fee.
As part of FOFA (Future of Financial Advice) any ongoing advice fee with a retail client must be supported by a FDS (Fee Disclosure Statement).
Insurance premiums are also deducted to cover the cost of providing Death, Disability and Income Protection cover.
Most funds have a default level of cover that can be increased or decreased. This cover is usually cheaper than can be negotiated outside the fund and is also usually provided without proof of health.
Some funds may charge a fee to set up all the member records and deductions.
Withdrawal fees can be charged every time a member makes a withdrawal from their superannuation. This is ostensibly to cover the cost of processing the withdrawal.
Exit fees may be imposed on a fund or member who exits in order to move to a new fund with a new provider. This may be seen as a punishment or disincentive to exit but may be warranted if the fund has been paying bonuses that are as yet unearned.