Listen to what Daniel Shrimski has to say

Daniel Shrimski is the managing director of Vanguard Australia, and says Australians deserve to know what they're really paying in super fund fees.

“It's no surprise many Australians are unsure what they're paying in fees.

Super funds are often quick to spruik low administration fees.

All funds charge investment management and transaction fees, but you could also be paying a variety of other fees including performance fees and investment switching fees.

Yet when it comes to how all these fees are presented on websites, social media and in advertising, there is no consistency. It's confusing, unclear, and almost impossible to compare between funds.

The upshot is that while you may think your fund charges competitive fees, the reality can be very different.”

Three ways super funds charge fees

The simplest way to consider how most super funds charge fees is through this straight-forward equation: Administration + Investment + Transaction costs = Yearly fee

Let’s break that equation down a bit.

1. Administration fees and costs

These cover the costs of managing and operating your super account. They are usually calculated as a percentage of your account balance, but sometimes can be a fixed dollar amount.

2. Investment fees and costs

These fees cover the costs of managing your chosen investment options, and are usually charged as a percentage of your account balance. They typically vary depending on the investment choices you make.

Some funds may also charge performance fees, when investment returns exceed a certain target level, although Vanguard Super does not.

3. Transaction costs

From one day to the next, super funds need to buy and sell underlying investment assets. This is usually the result of money moving into and out of the fund. There are costs associated with these various transactions, and these are charged as transaction costs.

Often, transaction costs will differ between investment options. This is because transaction costs often differ depending on the type of asset being bought or sold. For example, most people would appreciate that buying or selling the family house is more expensive than buying or selling shares listed on the ASX.

Other fees to watch out for

The fees outlined above will be charged by pretty much every super fund – they basically cover the cost of running things from day-to-day.

There are other costs, however, you may be charged because of decisions you specifically make about your super. These include:

Buy-sell spread: Most superannuation funds use unit prices to calculate the value of your super account. Each investment option in your super fund will likely have a:

· Buy price: This is the price used when you switch money into an investment option or when a contribution is made to your account. The number of units you receive is determined by this price.

· Sell price: This is the price used when you switch money out of an investment option, whether for switching investments, making a withdrawal, or paying a direct fee or insurance premium.

The buy price is typically higher than the sell price, and the difference between the two is known as the buy-sell spread.

The buy-sell spread helps ensure costs incurred in buying and selling assets are fairly allocated to those members who transact in an investment option, and not to members who do not.

Insurance fees: Most super funds provide the opportunity for insurance cover – this typically includes Death and Total and Permanent Disablement (TPD), and occasionally Salary Continuance cover. If you have insurance cover with your super fund, insurance fees (covering the cost of premiums) will usually be deducted monthly from your account.

Advice fees: If you receive financial advice relating to your super, these fees can sometimes be paid for and deducted from your super account.

The difference between direct and indirect fees

Super funds generally charge fees in one of two ways:

Direct fees: These are deducted directly from your super account and will appear in your transaction statement. For example, administration fees will typically be deducted directly from your account each month. So too are insurance fees and advice fees.
Indirect fees: These are fees which you pay, but which are not deducted directly from your account. For example, investment fees and costs are taken into account when calculating the buy and sell prices for each investment option. So too are transaction costs. So although you pay these fees, you won’t see them as a direct deduction from your super account, and they won’t appear in your transaction statement.

How to check and compare super fees

Comparing super fees can be confusing because different funds present fees in different ways. But there are ways you can make a reasonably accurate comparison.

Review your statement

This will show you the total fees that have been deducted directly from your super account throughout the year. Even more importantly, your statement will show you – in actual dollar terms – how much you have paid in direct and indirect fees. Vanguard Super members can check their annual statement through Vanguard Online.

Check the Product Disclosure Statement

Every super fund will have a document called a Product Disclosure Statement, or PDS for short. It contains essential information about the super fund, including key features, benefits, risks and complaints handling.

Each PDS will contain a section entitled “6: Fees and other costs” – this is required by law. You should read this section carefully to understand what fees and costs the super fund charges, and how they are charged.

The same section of the PDS will always include an example of annual fees and costs. It will show, using a table, the fees a super fund will charge over a one-year period and how the fees will impact a $50,000 balance.

You can use that table to compare the fees charged by super funds.

Use the YourSuper comparison tool

There are numerous super funds operating in Australia, so comparing and choosing the one that will work best for you may seem a difficult job. Thankfully, the Australian government has built an online comparison tool that can help.

The ATO’s ‘YourSuper comparison’ tool compares super funds that – like Vanguard Super – offer a ‘MySuper’ product. MySuper products are designed to be simple, low cost and easy to compare.

It compares around 60 MySuper products and you can sort them by investment performance, annual fees or long-term returns.

A quick guide to super fees