When choice of superannuation fund legislation was introduced, 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 properly disclose their cost structure, this has never been enforced.
This lack of transparency when it comes to super fund costs is one of the reasons MySuper is being introduced. Even after the introduction of MySuper, which will really only be a low-cost 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 the deceptive conduct of 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 records of the fund up to date. The second costs relate to the producing of investment income for the super fund.
Industry super funds have said their administration costs are significantly lower than commercial super funds. Despite industry super funds in most cases being very similar, the administration fees charged by funds 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, in trying to compete with industry funds, have tried to give the impression that they also charge very low administration fees. But upon closer examination it becomes clear administration 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 to not only 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 approximately 1 per cent. For a member with $100,000 in superannuation this results in extra costs of $1000 a year.
When comparing super fund costs it is also important to understand that 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 that should be taken into account when assessing what superannuation fund is best. This is especially the case when someone is assessing what super fund will be best for them once they are in pension phase.
Some super funds offer less investment choices for members in pension phase compared to 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 could be forced to sell investments when their value is depressed, to fund a pension payment.
Frequently Asked Questions about this Article…
What are the main types of superannuation fees I should know about?
There are two distinct fee types that affect your super: administration costs (keeping member records and running the fund) and investment costs (fees tied to producing investment returns). Both can materially affect your balance over time.
Why is superannuation fee transparency a problem for everyday investors?
The article explains that disclosure rules for super fund cost structures have not been consistently enforced, and some commercial funds have used deceptive pricing — for example making administration fees look low while embedding costs inside higher investment charges. That makes straightforward comparisons difficult.
What is MySuper and how might it affect my superannuation fees?
MySuper is being introduced as a simpler, low‑cost default option for members who don't want to actively manage their super. It aims to improve transparency, but the article notes it will mainly serve as a low‑cost alternative rather than solve all fee‑comparison problems.
How can administration fees be hidden in a super fund's investment charges?
Some commercial funds present low flat administration fees but recover extra costs by charging higher investment fees. In practice the administration cost is embedded in the investment charge, so the headline administration fee alone understates total cost.
How can I check whether my super fund is hiding administration fees inside investment charges?
The article says the only practical way is to compare the investment charge your fund pays to the same asset manager with the fees that manager charges wholesale investors. A notable gap between retail fund fees and wholesale fees can indicate hidden admin costs.
How much could hidden or higher investment fees cost me in dollar terms?
According to the article, the increase in investment fees charged by some funds averages about 1%. For a member with $100,000 in super, that works out to roughly an extra $1,000 a year in fees.
Are fees different when I move from accumulation to pension phase?
Yes. The article notes funds often charge different fees for accumulation versus pension accounts, largely because administration for pension accounts can be costlier. That means a fund that looks cheap in accumulation might cost more once you're drawing a pension.
Besides fees, what else should I consider when choosing a super fund for retirement income?
Fees are important but not the only factor. The article highlights investment choice in pension phase (some funds limit options), and how funds treat investment income — some reinvest income rather than pay it into a cash account to fund pensions, which can force members to hold large cash balances or sell assets when values are down.
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