You probably wouldn’t bother driving across town for a one per cent saving on a product, but when it comes to superannuation, one per cent can make a massive difference.
Super funds charge varying fees, and every percentage point can amount to $100,000 more, or less, at retirement.
The Australian Securities and Investments Commission estimates a 1 per cent difference in fees can amount to a 20 per cent difference in your back pocket when you retire.
For example, take a 30-year-old worker earning $50,000 a year, with $20,000 in super. If they move from a fund which charges 2.5 per cent in management fees, to one which charges one per cent, the result will be an extra $81,600 when they retire: $336,000 versus $255,000.
There are a variety of fees associated with superannuation. Administration fees are charged by all funds, and can be a flat rate or calculated as a percentage of your balance to cover the costs of the likes of issuing statements and running an office. Investment or management fees are for the management of your superannuation.
Insurance fees are for the insurance within your super policy, but are generally much lower than the cost of stand-alone insurance. And exit fees are charged by some super funds if you want to move your money to a new provider.
So how much is too much? The average management fee is 1.3 per cent, but some funds charge as much as 4 per cent.
Look for funds that return their profits to members, as it is more likely than not their fees will be much lower.
Industry super funds, started in the 1980s by unions and employer groups to provide low cost superannuation options for workers and keep fees as low as possible, with all profits being returned to members.
All super funds must list their fee schedule in their product disclosure statement, which you will find on their website.
Of course, there’s more to consider than simply price. The very cheapest fund may not provide the best returns, and other facts such as insurance cover included within your superannuation account should be taken into consideration.
But all things being equal, a fund which charges lower fees will see its members retire with more than a fund whose fees are high.
If you are worried about fees you can always see a financial advisor that will provide you with advice on what is the best fund for your personal situation.
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