Super fees tamed

Fees on the super funds provided by banks, insurers and master trusts have dropped about 5 per cent in the past 12 months to 1.9 per cent on a $50,000 balance. Three years ago fees on retail funds were about 2.4 per cent, representing an overall drop of 21 per cent in three years.

SuperRatings says fees for non-profit funds - which include industry funds, public sector funds and corporate funds - have remained flat at 1.1 per cent.

The researcher uses a $50,000 account balance for its calculation, as that is the amount funds are required to use when disclosing fees in their product disclosure documents (the figure is also closer to fund members' balances than, say, $100,000).

The research manager at SuperRatings, Kirby Rappell, says retail funds have been introducing cheaper products to compete with low-fee industry funds.

They are also anticipating the introduction of "My Super" legislation, under which employers will have to select a default super option that meets its criteria, such as low fees. The "My Super" default will not be allowed to pay commissions for financial advice from members' accounts as occurs now with retail funds.

Non-profit funds are generally cheaper than retail funds, mainly because they do not pay commissions and because of their lower administration fees. The investment returns of non-profit industry funds have also been higher over the long term because they are more active in their asset allocations.

They are also more prepared to change their asset allocation when market conditions change than their retail counterparts. It's the return to members after all costs that matters.

SuperRatings reports returns with the commission payments and administration fees deducted from the investment returns. Its data shows non-profit industry funds produced an average annual return, net of fees, to March 31 this year of 5.86 per cent over the past 10 years, compared with a return of 3.56 per cent by retail funds. While nobody knows for sure what investment markets will do, fund members can at least establish if the fees on their fund are too high.

While pricing among the big non-profit funds tends to be similar, the difference in fees is larger among retail funds.

All fund members should make the effort to review their funds.

High-fee funds are not always bad - it may offer more investment choices - and high fees can be more than offset by even higher returns, leaving the member better off than a low-fee, low-return fund.

Another important consideration before switching funds is to check the insurance cover. Many funds have automatic acceptance for insurance up to certain amounts whereby members are covered by death and total and permanent disability insurance without having to undertake a medical examination or disclose health information. The new fund may not have automatic acceptance or may have a lower level of cover for which there is automatic acceptance.