Negotiating the super maze to a secure future
WHEN legislation was introduced for choice of superannuation fund, it did not apply to everyone. According to some awards and enterprise agreements, employers were required to contribute to one or two specified funds. In addition, despite there being a requirement for super funds to disclose their cost structure, this has never been properly enforced.
WHEN legislation was introduced for choice of superannuation fund, it did not apply to everyone.According to some awards and enterprise agreements, employers were required to contribute to one or two specified funds. In addition, despite there being a requirement for super funds to disclose their cost structure, this has never been properly enforced.This lack of transparency on super fund costs is one of the reasons MySuper is being introduced.Even after the introduction of MySuper, which will really only be a cheap alternative for people not wanting to take any interest in their super, the job of assessing what super fund is best is made harder because of deceptive conduct by some commercial super funds.The costs that affect a member's superannuation account are made up of two distinct types. The first are administration costs relating to keeping the fund's records up to date. The second costs relate to producing investment income for the super fund.Industry super funds boast that their administration costs are significantly lower than commercial funds. Despite industry funds in most cases being similar, administration fees can differ greatly. In some cases a flat, low membership fee is charged while in others an additional expense recovery fee is also charged.Some commercial funds trying to compete with industry funds have attempted to give the impression they also charge low administration fees. But closer examination shows that these fees are received as increased investment charges. This makes the task of comparing superannuation almost impossible.The only way to establish whether administration fees are hidden in investment charges is to compare the investment cost charged by a super fund with those charged by the same manager to wholesale investors. The difference in investment charges can apply not only to investments in the Australian and international share sectors but also to the cash and fixed-interest investments offered.The increase in the investment fee charged averages out to about 1 per cent. For a member with $100,000 in super, this results in an extra $1000 in costs a year.When comparing super fund costs, it is also important to understand there can be a difference between fees charged for members with an accumulation account and fees charged for a pension account. This is often due to the increased administration costs relating to maintaining a pension account.Fees are not the only consideration when assessing what superannuation fund is best. This is especially the case when someone is assessing which super fund will be best for them once they are in pension phase.Some funds offer fewer investment choices for members in pension phase compared with those in accumulation phase.In addition, rather than paying income earned into a cash account that pays the pension, some super funds reinvest the income into the investment. This can mean a member must have large amounts invested in cash, or they may be forced to sell investments when their value is depressed to fund a pension payment.