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Table of Contents
- What Are Superannuation Fees?
- How Much Are Superannuation Fees?
- Frequently Asked Questions (FAQs)
Australia’s compulsory superannuation system was put in place more than 30 years ago with the purpose of setting money aside during an employee’s working life to provide for income during their retirement.
Super is important because the more you save, the more money you will have available during your retirement years. Apart from contributions and the returns they generate over the years, the fees you pay on your super also has a material impact on how you retire.
Analysis by the Productivity Commission has found that a change in fees by just a few percentage points can make a big difference in a person’s super balance by the time they reach the end of their working life.
Many Australians grapple with trying to understand the fees levied on their super balances, so here is a breakdown of what is commonly charged to give you a clearer picture.
Related: Our Pick of the Best Superannuation Funds
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What Are Superannuation Fees?
Superannuation funds charge different types of fees to cover the various costs related to your super account, which are deducted from an account’s balance. Broadly, these can be categorised into administration fees, investment fees, transaction fees and other costs.
Administration fee
Administration fees are annual charges levied by super funds to cover the general cost of managing your super account such as administration, compliance, technology and marketing costs.
These are charged either as a fixed fee, as a percentage of your account balance, or often as a combination of both. For example, the country’s biggest super fund AustralianSuper charges a flat administration fee of $1 a week, plus 0.10% per annum of your account balance.
Investment fee
These are charged to cover the costs of managing your investments and include fees paid to investment managers or external parties such as brokers and government authorities. It is usually charged as a percentage of your super balance and can vary based on your choice of investment option.
In some cases, the investment costs also include a performance fee if returns exceed an agreed level of return, calculated as a percentage of the investment return over the target.
Transaction costs
Transaction costs cover the expenses associated with the day-to-day buying and selling of investments, such as stamp duty or brokerage costs. These are charged as a percentage of the super balance and will vary for different pre-mixed or customised investment options.
Transaction costs can also take the form of an investment switching fee or a buy/sell spread fee.
Investment switching fee: Some super funds charge a fee if you switch between different investment options within your superannuation fund—for example, switching from a high growth investment option to a balanced strategy.
Buy/sell spread fee: Some super funds charge buy/sell spread fees to cover the difference between the buying and selling prices of the underlying investment when you make a contribution, withdrawal or switch investment options.
Insurance fees
Generally, most super funds automatically provide members with default level of life insurance cover (also known as death cover) and total permanent disability (TPD) cover, unless you opt out. Some also provide income protection cover. Insurance fees are payable on a monthly basis for the insurance premium plus any costs incurred by the fund in administering the insurance.
Advice fee
Most super funds provide general advice for free. However, if you seek personal advice about your super and related matters, a one-off additional fee may be charged.
Other costs
If you make additional contributions into your super fund beyond the standard contribution rate (currently 11%) of contribution made by your employer, these are subject to a contributions tax payable to the government.
Contributions are taxed at 15% within the fund, and you can make additional contributions to your fund at the tax-efficient rate of 15% up to the value of $27,500 per year. They are taxed at 30% if you exceed this limit. You can read more in our guide to super contributions.
How Much Are Superannuation Fees?
The aggregate of fees, also called the total expense ratio (TER) charged in your account, varies depending on the super fund and the investment option chosen. Fees will also differ greatly based on your age and account balance.
On average, people in a super fund’s default MySuper investment option pay between 1% to 1.5% of their account balance in fees every year. That means, for example, if your super balance is $50,000 and your total fees are 1%, your annual fee would be $500. Fees higher than 1.5% are generally considered expensive.
Obviously, the less you pay in fees, the more balance you will accumulate over your working life.
Are superannuation fees tax deductible?
Fees paid to your superannuation fund are generally not tax deductible, except when these have been paid for specific personal advice about your super or related investment matters.
You can also claim a tax deduction for voluntary super contributions from your after-tax pay. These earnings are eligible to be taxed at a concessional rate of 15 per cent instead of your marginal tax rate.
Pro Tip
Superannuation fees higher than 1.5% are generally considered expensive, and obviously, the less you pay in fees, the more balance you will accumulate over your working life
What superfund has the lowest fees?
Industry superfunds, which are profit-for-member only funds, generally have lower fees compared to the for-profit retail super funds. That is one of the factors contributing to industry funds generating higher net returns compared to retail super funds.
Industry fund Hostplus is considered to have one of the lowest administration fees compared to other superannuation funds with a MySuper product offering. It has a fixed administration fee of $1.50 a week or $78 a year plus 0.0165% of the account balance per year. Other industry funds also offer compelling fee structures, so do your research to work out which one is best for you.
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Frequently Asked Questions (FAQs)
How can you compare superannuation fund fees?
You can compare super fund fees using the Australian Taxation Office’s YourSuper comparison tool, an online list comparing MySuper products. You can also review the product disclosure statement (PDS) for each product offered by a fund, as well as super comparison websites offered by private companies.
Is it worth switching to a different superannuation fund for lower fees?
Fees depend on various factors such as your account balance, your investment option, the level of insurance cover, etc. Lower fees is only one factor that should affect an individual’s decision to switch to a different super fund. Other factors you should compare include the returns and performance of the super fund in comparison to others over the long-term, the investment options available, level of services offered, etc.
Why are superannuation fees so expensive?
Australian superannuation funds manage a massive savings pool of $3.5 trillion and cover a variety of costs related to your super account. These include administration, compliance, technology and marketing costs; expenses associated with the day-to-day buying and selling of investments; as well as fees for the insurance premium, plus any costs incurred by the fund in administering the insurance. In total, these range between 1% to 1.5% of their account balance every year.
Do superannuation fees change each year?
Some of the fees that super funds charge tend to vary from year to year depending on changing rules or costs. For example, if investment costs have been higher, or insurance premiums have gone up, or compliance costs have risen with changing regulations, many of the bigger industry super funds, which tend to be member-for-profit, have to distribute the additional costs among their members. Costs have also reduced in some cases thanks to savings due to growing scale.
