Excessive fees are tearing large chunks from the retirement savings of many Australians, according to a recent Grattan Institute reporti.
The research paper, “Super sting: how to stop Australians paying too much for superannuation”ii, reveals that Australians are paying an average of 1.2% in fees on their superannuation account balances, and this is more than triple the median OECD rate.
The upshot for a 50-year old Australian, according to the Grattan Institute, is that his or her super balance will be reduced by almost $80,000 in fees (in today’s dollars) at retirement.
The potential impact for a 30-year old is even grimmer, with excessive fees set to chew up to $250,000 in retirement savings.
Grattan Institute Productivity Growth Program Director Jim Minifie says costs are too high because the system wrongly assumes that choice in the market will drive enough account holders to choose low-price funds, thereby forcing others to lower their fees.
The report recommends two reforms to reduce the cost of superannuation: creating a new low-price default fund for new job starters, and using the tax return process to allow taxpayers to match their fund against the new fund — and to be able to switch on the spot.
But such reforms are in the future and for now, Australians would be better served checking in with a fee rebate service.
“Rebate research services enable customers to claim a rebate for a portion of the fees charged by retail superannuation funds, allocated pensions and so on,” says InvestSmart CEO, Ron Hodge.
“The amount you receive back every year could make a significant impact on your savings and ultimately the lifestyle you can enjoy in retirement – let’s face it $80,000 could fund plenty of overseas travel once you hang up the work boots.”