Superannuation, The Hidden Costs

We all know what superannuation is, but do you understand exactly what you are paying for, and exactly what you are paying. I am not talking about those ‘low admin costs’, I am talking about the ‘hidden’ costs.

The Costs of Superannuation

We are aware that we pay an administration fee, this can be structured in many ways, including a flat dollar fee, or a percentage based fee. We also constantly hear about the low fees payable through the various funds out there. But what other fees are you paying?

There are insurance costs, however I will not include those in this discussion as these are variable and should be determined based on your individual insurance needs.

So what else is charged? The fund itself may not charge these fees, but the investment manager will, its called an MER or Management expense ratio. It is also disclosed in the PDS, that many would not have understood thoroughly, it is also charged before the income from that investment is paid to your account. Therefore, you will see this income, but not the expense.

So what do these fees look like? I reviewed a popular funds ‘Balanced’ or default investment option. This is 0.60% of your balance.

Examples

The following table outlines a summary of these costs, depending on some assumed balances. I have also included the costs associated with an alternative that we consider for clients:

$150,000$300,000$450,000
Administration$382$417$612
MER$900$1,800$2,700
Total$1,282$2,217$3,312
Alternative$590$905$1,220
Saving/(Cost)$698$1,312$2,098

Other Considerations

This comparison is made purely on fees and there are other considerations that should be made when reviewing your superannuation provider, including:

  • Investment Returns
  • Insurance cover options and cost
  • Your personal situation

Key Message

When reviewing your finances it is always important to consider the detail of all products and strategies to ensure that they are appropriate for you, cheapest is not always best, however it is best to understand what you are paying for, and if it is more, why you are paying that.

To understand how Prosper can help you with reviewing your financial situation, click here.

Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Prosper accepts no responsibility for any loss suffered as a result of any party using or relying on this article.

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