Superannuation Fees Explained | What Fees are you charged
A previously released study from the Productivity Commission has revealed that Australians who moved from poorly performing funds to the best fund could benefit by as much as $600,ooo in retirement. (Source: Superannuation: Assessing Efficiency and Competitiveness Report. No. 91, 21 December 2018).
Many workers do not understand why and what fees are charged for the management of their Superannuation Funds. We have put together a list of the most common fees and what they cover.
Starting with the simplest fees and arguably the most notable, administration fees are, as the name implies, fees that cover the administration for the superannuation funds. These fees cover the website and online portal for you to log in and view your superannuation balance. It also covers the software which the superannuation fund uses to keep track of your contributions into the superannuation fund and the reporting of how your superannuation balance is performing.
Typically, this fee can be a fixed dollar amount and/or a percentage of your superannuation balance. For example, Australian Super charges a fixed weekly fee of $2.25 plus a percentage fee of up to 0.04 per cent of your superannuation balance.
Management expense ratio (MER)
The Management Expense ratio is one of the areas of most confusion. The management expense ratio (MER) discloses the fee that is paid internally within a mutual fund. For example, a pre-mixed investment option with an industry fund, or the internal fees of a managed fund or exchange traded funds that you may invest in with a retail superannuation fund.
This measures the fee paid to the manager who chooses how your assets are invested. It also covers the internal administration costs of the pre-mixed investment option, managed fund or exchange traded fund.
However, you will not see this fee being debited from your superannuation fund member statements or cash statement. As the fee is paid from within the investment option, it is effectively debited from any income distribution that is then made to your cash account.
This fee does not cover internal brokerage and transaction fees within the pre-mixed investment option, managed fund or exchange traded fund.
Indirect cost ratio
Similar to the above, this fee is often used instead of the MER, and in summary, the indirect cost ratio will include more fees in its calculation than the MER. This fee covers indirect costs and can include performance fees – a bonus paid to the fund manager after meeting a performance hurdle, i.e. +2 per cent additional return over a set benchmark, e.g. ASX 200 share index, plus investment-related legal, accounting, auditing and other operational and compliance costs.
Not all superannuation funds charge a custodian fee, but some of the funds might be charging these fees to members. A custodian is usually a special company overseen by a separate board of directors which owns the superannuation assets on behalf of the members of a superannuation fund. These companies provide an additional and important check on how the fund’s assets are being managed.
Again not all superannuation funds charge this, but some will charge members a transaction fee when they change their investment option. Most industry funds will allow you to make one or two ‘switches’ between any of their investment options within a year. If you start to make a ‘switch’ above the permissible free ‘switches’ each year, a fee of between $15 to $30 per ‘switch’ may be charged.
Most retail superannuation funds will charge a transaction fee of between $15-$25 per transaction.
In some superannuation funds, when you change your investment option, you may not be charged a transaction fee but a ‘spread’ if you are buying or selling in or out of that investment option.
Example: if you have the ‘balanced fund’ option and are moving your super monies into this option, you may effectively be purchasing each unit for $1.01. If you are moving your super money out of this option, you will be selling each unit for $0.99. This difference is called the buy/sell spread.
Finally members who have a financial adviser as part of their superannuation might be slugged a financial adviser fee.This can be a percentage amount or a fixed dollar cost, pending the pre-agreed arrangement between the superannuation fund and its member.
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