Research by ING DIRECT confirms that super fees are a key stumbling block for Australians saving for retirement. Final nest eggs can be eroded by up to $192,000 as a result of super fees, and some of the top fee-paying Australians are paying around 2.33%.
Key findings:
Annual super fees can range from 0% to around 2.33%. The average fee is 1.15%.
A 30-year old man could retire at 65 with super worth $511,000 in a 0% fee option compared to $319,000 in a fund charging 2.33% – a difference of $192,000. For a 30-year old woman the impact of high fees can add up to $177,000 over a working life. This assumes investment returns are the same.
After allowing for inflation, super funds charging fees of 2.33% need to earn almost 5% annually just for super savings to hold their ground.
Passive investment management is now used by close to 50% of retail super funds.
Super fees – from 0% to around 2.33% annually
Research by ING DIRECT confirms the wide variation in super fees being paid by Australian workers.
Super fees can range from 0% to around 2.33%. In dollar terms, this means that annual fees can range from $0 to $1,165 on a super balance of $50,000.
Some of the top fee-paying Australians are paying around 2.33%. The lowest fee-paying Australians are paying a median of 0.51%.
Super fees have fallen slowly
In the ten years since 2004, average super fees have fallen by a total of 0.42% for retail super funds and 0.23% for industry funds.
The reduction in fees has been accompanied by increased use of passive rather than active investment management. The percentage of assets passively managed by a representative basket of retail funds has risen from 24.0% in 2011 to 46.6% in 2013.
High fees do not buy improved performance
ING DIRECT research confirms there can be little difference in performance between actively managed super funds and passively managed options.
Mark Woolnough, Head of Third Party Distribution, ING DIRECT, says, ³If performance outweighs fees, investors are often happy to pay, however our research has shown that high fees don¹t necessarily guarantee higher returns and in fact can leave a significant hole in a client¹s retirement nest egg.
³Ultimately it comes down to value, and with the rise of passive investment strategies, high fees are becomingly increasingly difficult to justify.
³Through a simple review you could potentially save your clients¹ hundreds of thousands in what is arguably one of the largest investments they will ever make. That¹s adding real value.²
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