Comparing fees

There’s a simple reason why super fees matter: small changes in fees can make a big difference at retirement.

The Productivity Commission has previously estimated that for a full time worker aged 21 with a starting salary of $50,000, paying an additional 0.5 percentage points in annual fees (for example 1.5% rather than 1%) could cost them around 12% of their balance by the time they reach retirement. That works out to be about $100,000.

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.

You can check your annual statement which will provide details of both direct and indirect fees you have paid throughout the year. You can check your super fund’s Product Disclosure Statement, which will include an example of annual fees and costs.

Even better, you can try the ATO’s ‘YourSuper comparison’ tool. It compares the fees charged by around 60 super funds that offer a ‘MySuper’ product – including Vanguard Super.

^{Note: The example is illustrative only and is based on the factors stated. It should not be taken to contain or provide an estimate of your retirement balance. The above scenario and assumptions are outlined in Productivity Commission 2018, Superannuation: Assessing Efficiency and Competitiveness, Report no. 91, Canberra. Higher fees of just 0.50 percentage points can cost a typical worker 12 per cent of their balance (or $100,000) by the time they retire. Assumes a starting salary of $50,000, at age 21, and retirement age 67.}

Comparing performance

There are a couple of fundamental rules you should follow when comparing super fund performance.

First, consider performance over the longer term. “Longer term” will mean different things to different people, but performance over a period of at least five to seven years is generally considered a good starting point.

And make sure you compare like with like. For example, only compare a balanced option with another balanced option, and try to use the same timeframe.

What to do if your super fund is underperforming

The Australian Prudential Regulation Authority (APRA) is the Government regulator that oversees super funds. Each year, APRA tests the investment performance of funds – if your super fund performs badly under the test, the fund must let you know. If you find yourself in an underperforming super fund, you should probably consider changing funds.

Comparing investments

It’s also worth comparing the investment menu offered by super funds. Some super funds offer only very limited menus – maybe only five or so investment options to choose from. Others, especially ‘platforms’ that are popular with SMSF members, offer investment menus that are – frankly – enormous. Some offer up to 600 different investment options to choose from. It’s a big number, and choosing from a menu this large is potentially going to be a difficult and confusing process.

Consider if a ‘Goldilocks’ menu might work best for you. Not too large, not too small – but just right.

At a minimum, a super fund’s investment menu should provide options that cover the entire risk/return spectrum. From low risk/low return options like Cash, through to high risk/high return options like High Growth and Shares.

The investment options should ideally include both single sector and diversified investment options.

A few super funds – including Vanguard Super – offer a Lifecycle investment option. These are designed to do the hard work for you, by adjusting your investment choice according to your age. If you’d rather let the investment experts do the hard work for you, considering a super fund that offers a Lifecycle investment option is not a bad idea.

Tools to help you compare

Thankfully, the Australian government has built an online comparison tool that can help you compare super funds.

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.

The ‘YourSuper comparison’ tool compares around 60 MySuper products and you can sort them by investment performance, annual fees and long-term returns.

How to compare and choose a super fund