Superannuation’s top performers for lowest fees versus highest performance revealed

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Like many young Australians, Molly Kane hasn’t paid much attention to her superannuation.

She’s had several casual jobs and with them, five super accounts.

She says every cent that went into them got eaten away by fees.

“Knowing that the money that’s meant to be going towards your retirement is now non-existent because of fees that you didn’t know existed, it really sucked,” Ms Kane says.

“The biggest reason why young people lose out with super at the moment is because we leave it as a set-and-forget type of scenario — we don’t look at it, we don’t think about it.

“Often, the only time you’ll hear from your super is in an annual statement, if you happen to open it.

“It’s not something that’s in the forefront of a lot of people’s minds. And because of that, we tend to forget we end up with multiple accounts, we end up with paying too many fees. And at the end of the day, it just hurts us.”

Excluding insurance premiums, Australians spend more than $30 billion in super fees every year, according to the 2019 Productivity Commission review into superannuation.

Even taking more recent estimates from the Australian Prudential Regulation Authority (APRA) based on data super funds report to the regulator — which does not count all fees and charges — we are estimated to spend about $19.3 billion. That’s well over the $15.9 billion we spend on electricity bills annually.

Super fees can add up to thousands over time

If you’ve got $100,000 in just one superannuation fund and the fee is 1 per cent — that’s not a one-off $1,000 payment.

It is 1 per cent of your total assets in fees, each and every year.

As your account balance grows from contributions and investment earnings, so do your fees.

After 10 years of compounding, assuming your balance has increased to over $200,000 by your employer contributing 10 per cent of your wages, you’ll have paid more than $17,000 in fees, according to Australia Institute analysis.

Even in bad years when negative investment returns mean your account balance goes backwards, you could still be paying over $1,000 a year in fees.

University of Melbourne PhD student Kate Ferris knows the feeling of losing out on fees. She also had multiple super accounts by working casual jobs over a number of years.

“About 20 years ago, I had about four jobs and each one of those jobs was attached to a different super fund,” Ms Ferris says.

“Each one of those super accounts was being eaten away by fees and charges.

“I estimate that I lost about $3,500, and that accumulates interest [compounds] over time. So in actual fact, I’ve lost a lot more than that.

“I was pretty gutted and disappointed when I’ve done the sums and figured that all out.”

But fees are not the only equation that needs to be considered — how your fund performs also matters, and experts say ideally, consumers should be opting for low-fee, high-performance funds.

According to a Rainmaker Information analysis of fees compared to five-year performance, industry super funds generally came out on top.

Super Consumers Australia did an analysis of highest-fee and lowest-fee funds based on March 2021 APRA data.

Its analysis does not cover fees versus performance. It only shows highest- and lowest-fee single strategy MySuper products (in other words, not all funds) with at least five years of investment returns data.

Australians will be able to compare the performance of some super funds

To make it easier for Australians to identify whether they are in a high-fee, low-performance fund, the Federal Government recently passed the Your Future, Your Super law.

The government’s latest laws make it easier for Australians to compare the performance of My Super products, which cover many of the most popular superannuation funds.

Its next step will be collecting data that allows people to compare fees and performance across all super funds.

“The superannuation funds have been put on notice that under-performing funds are not welcome in the system, and that high fees can no longer be hidden,” says Superannuation Minister Jane Hume.

Senator Hume says the Government has passed one of the biggest reforms since compulsory superannuation began in 1992.

“[It] will save around $17.9 billion [by placing it] back into the retirement savings of everyday Australians over the next 10 years.

“The only money superannuation trustees have to spend is yours, your retirement savings.

“We want to make sure when superannuation trustees make decisions about expenditure or make decisions about investment, that they do so with the best financial interest of their members of mind.”

The government’s changes also prevent people from being pushed into a new fund every time they start a new job.

From now on, they will be stapled to their existing fund.

“[Those measures are about] getting rid of those duplicate accounts that proliferate throughout the system, getting rid of two sets of fees, two sets of insurances, and sometimes even more,” Senator Hume says.

Consumer groups have generally welcomed the reforms, although the industry funds lobby group, Industry Super Australia, has warned that many people could be stapled to dud funds.

Call for some super funds to ‘stop taking advantage’ of Australians

Super Consumers Australia director Xavier O’Halloran says it is time some super funds stop taking advantage of Australians.

“Unfortunately, at the moment, people are being charged really high fees for pretty poor outcomes in some accounts,” Mr O’Halloran says.

“There’s about $30 billion a year that people are spending on superannuation fees, and the average person’s probably getting about 1 per cent of their superannuation creamed off the top in fees, which really adds up.”

“Superannuation is one of those things that’s really hard to keep track of  — the fees aren’t in your face, you’re not getting letters [from the provider] as often.

“And a lot of people miss out and don’t realise that they’ve paid quite high fees each year in superannuation.”

Mr O’Halloran says fees are made up typically of investment fees, which make up about 70 per cent of the cost, and administration fees, which make up about 30 per cent.

“You’re looking at things like customer service, maintenance of the website for those administrative fees,” he says.

“And then for investment fees, it’s a lot of money going to fund managers to pay them to pick the best investment options to deliver good returns for you.”

He says consumers paying above the 1 per cent average fee should shop around and look at the returns and the performance over the long term.

“Even if you’re getting charged low fees, returns over the long term are going to be the really important factor,” he says.

“Around tax time is a good time to check to see what you’re paying, where your superannuation is, what types of returns it’s delivering over the long term, and what kind of risk they’re exposing you to for those types of returns.”

He also notes that in order to attract new members, some funds also spend a lot of money on sponsorships but that they may not be delivering good returns and are “essentially wasting members’ money”.

Recent high returns thanks to share market performance improving

Executive director of research firm Rainmaker Information, Alex Dunnin, says currently superannuation funds are delivering amazing returns.

“It’s just over a year since the worst of the COVID financial crisis hit,” he says.

“The stock market has pretty much been riding the crest of a wave for the last 12 to 13 months, and super funds are now sitting on average [annual] returns of almost 20 per cent.

“And now with the results coming in for the financial year, super funds have just had their best year ever since when we starting keeping records 34 years ago – it’s phenomenal the returns they’re getting.”

Mr Dunnin says there’s now a massive push for super funds to lower their fees.

“Over the next few years, we expect super fund fees to come down a lot further than they are now, to the point where it could actually revolutionise the superannuation industry in Australia,” he says.

He says switching is easy and funds can no longer charge thousands of dollars when consumers want to exit a fund.

“You can just go to any super fund, click on the website and say, ‘I want to join your fund’. And that fund will then do the administration work for you.”

But Mr Dunnin also advises consumers to not only search for the lowest-fee fund.

“In itself, being in a low-fee fund doesn’t matter. It’s always the returns you get,” he says.

More competition set to lead to more super funds merging

As more funds are put to the test, it’s possible that some will fail and exit, while others will merge and become more competitive.

“If you look out over the next five to 10 years, I certainly think you’ll see more consolidation in the superannuation industry,” says Aware Super chief executive Deanne Stewart.

“The reason for that is that scale matters.”

Aware Super is one of the better-performing funds in terms of fees versus performance and Ms Stewart says the Government’s new laws will help by making sure that Australians don’t have multiple accounts charging fees.

“Ultimately, you should have lower fees and therefore, better retirement savings,” she says.

“Performance makes a huge amount of difference to someone’s retirement balance.”

The Productivity Commission review into superannuation looked at the performance of top-performing and bottom-performing funds.

“And then it showed if an average Australian worker started in a poor-performing fund and stayed there for the rest of their working life, they may end up with $600,000 less — that has a significantly greater impact than actually the fees on multiple accounts.”

The Productivity Review also found that Australian funds were not as competitive compared to pension funds in European countries and Canada.

But Ms Stewart says “we are not comparing apples with apples”.

“They have a very different superannuation system to ours,” she says.

“They’re either government-run, or in some cases, they are privately run. But they are what’s called defined benefit. So essentially, it’s not about choice. It’s not about investment options. It’s about essentially guaranteeing a percentage of your income.

“You don’t need any servicing or the administration side until you’re nearing retirement.

“And so you’ve got a very different cost structure [overseas] to the Australian funds that are much more open, much more open to choice.”

Part-time worker Molly Kane has now consolidated all her super accounts into one low-fee fund.

But she says Australians have the power to change their fund anytime if it’s not delivering.

“Look at your account — are you losing anything in fees?” she says.

“Is your money growing or shrinking? Really have a look and see if there’s anything better out there.”

Ten years ago Ms Ferris consolidated her funds into one account and now pays closer attention to her fund’s performance.

“I would advise go online, check your fees and charges, check your balances — you have control. It’s your money,” Ms Ferris says.

By business reporter Nassim Khadem (Original ABC Article)