Do nothing – and pay the price

Make sure high fees and poor returns don’t hit your retirement savings

How easily would you forgo $100,000 of a $500,000 super balance purely because of inertia? When you get your annual statement, look at it closely. With such high stakes involved, a more appropriate approach might be that of a rottweiler with a bone.

“One per cent more in fees over a 30-year period can decrease your retirement balance by up to 20% – that’s a significant difference,” says Camille Schmidt, market insights manager at research firm SuperRatings. “It might not sound like much but that extra 1% you are paying is 1% less in your balance, year after year, compounding over a very long period of time.”

Schmidt urges fund members to take a more forensic approach to their statement and check the different fees. “We say a total fee that’s more than 1.4% to 1.7% of the balance is getting into the expensive range.”

The table provides an example of how fees may appear on your statement: the member fee; a percentage-based administration fee, which covers your fund’s operating costs; a percentage-based fee for managing your investments; and a new item called indirect costs. This new item is an existing cost that’s been carved out of the investment fee as a result of ASIC requirements. Indirect costs include the cost of outsourcing to other specialist fund managers and various transaction costs.

The combination of fees and costs vary across funds. “Some funds may not have any indirect costs to disclose or they may not charge a percentage-based administration fee,” says Schmidt. Fees can be either a dollar amount or a percentage.

To make the table more consumer friendly, SuperRatings has calculated the dollar value of each fee. It’s something New Zealand super schemes are now required to do in annual statements so members can tell at a glance what their total super costs are.

Returns are also important. How do they compare with those of the top performers?

“The thing with benchmarking performance is that you have to make sure you are comparing the same time period and the same investment option,” says Schmidt. “If your fund is well below what the top 10 funds are achieving every time you look, then it’s probably an insight into the fact they might be not the best provider for you.”

Funds are required to provide five- and 10-year performance numbers for MySuper products to ensure there isn’t a focus on short-term returns. This is yet to be extended to other investment options.

Laura Menschik, a financial planner and director of WLM Financial, says that where performance is repeatedly below par you’d want to review it. “But chasing whoever did the best return last year is not necessarily the greatest strategy.”

She says it’s important to look at super as the core of retirement planning even if it’s 30 years away, and while members need to be aware of fees, it’s the overall result that counts. “You hope the fund manager is performing well and charging a reasonable amount for their services, and if the manager charges a little more hopefully they are adding more value – another 0.5% but only taking an extra 0.1% for it.”

Menschik advises checking your insurance cover. “Young people may be paying for insurance they may not need or want. For older members, premiums keep getting higher and tend to tick over unless people take the time to analyse why they have it.”

Review your nominated beneficiaries. Make sure you have a binding nomination so your fund follows your instructions, and remember it needs to be renewed every few years unless it is non-lapsing (only 20% of funds have non-lapsing nominations).

Finally, if you receive multiple super statements it’s a sharp reminder to consolidate your accounts and protect your savings from unnecessary fees. Make sure your fund has all your contact details.

“It’s important to check your nest egg,” says Schmidt. “This is going to be your retirement income so it’s important to keep a handle on how much you have and work out whether you’ll have enough. If not, consider making additional contributions. Also check that your employer’s contributions are the right amount. It could be there is a data error that could have a significant impact on your retirement.”

For the top 10 performers, see super ratings.com.au/superratings-top-10.

To work out if you’ll have enough super, see moneysmart.gov.au/ tools-and-resources/calculators-and-apps/ account-based-pension-calculator.