Superannuation fund provider Vanguard says a 0.5% difference in fees can cost the typical full-time worker about 12% of their balance – equivalent to $100,000 – by the time they reach retirement.
This explains why it's so important for Australians to understand the fees they are paying to their superannuation funds.
Vanguard notes that some funds charge up to six types of fees, including an insurance premium, and multiple fees can add up to the extent that they can delay the timing of people's retirement.
But a lack of transparency makes it incredibly hard to understand what fees you are paying, says Daniel Shrimski, Managing Director of Vanguard Australia.
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Superannuation fees too difficult to compare
New research by Vanguard found more than 60% of Australians are confused about their superannuation fees and wouldn't feel confident explaining how they are charged.
In an article, Shrimski says this is "hardly surprising", and comments further:
Comparing fees across super funds can be difficult because there are inconsistencies across the industry in how they're disclosed – some funds charge three fees, others charge six; fees are called different things and capture different charges.
While there are rules around the formal product disclosure documents for super funds, when it comes to how fees are marketed on websites, social media and in advertising, there's no consistency.
Vanguard's research also showed one-third of Australians have never compared fees between different superannuation funds.
Shrimski said Australians deserved to have a full and clear picture of the fees they are paying:
…it's not reasonable to expect Australians to comb through product disclosure statements to find the information they need to compare their super fees. Nor, I would argue, is it fair.
Funds shouldn't be making it hard and complicated for Australians to find, see and clearly understand their super fees.
Vanguard says up to six types of fees can be charged. They are called administration fees, investment fees, transaction fees, activity fees, performance fees, and an insurance premium.
Vanguard is a relatively new player in Australia's superannuation landscape. It is trying to differentiate itself in several ways, including simplifying fees.
Shrimski explains:
In contrast, Vanguard Super presents a total fee on a yearly fee basis which incorporates the investment cost, administration fee and transaction costs…
There's also an easy-to-use calculator on our website; all you need to do is enter your super balance.
Vanguard's Chief Investment Officer Duncan Burns said a superannuation fund's investment performance and its fees are the two factors that will "materially impact your superannuation balance at retirement".
Many Australian workers are not only unaware or unsure of the fees they are paying but also of how their superannuation fund is performing.
A Finder survey revealed 49% of Australians – the equivalent of 10.2 million people – have no idea how their superannuation fund is performing.
How much super do you need for retirement?
According to the Association of Superannuation Funds of Australia (ASFA), workers need $100,000 in super by age 67 to fund a modest retirement lifestyle.
A comfortable lifestyle requires more super savings: $595,000 for singles and $690,000 for couples.
