The more you pay in super fees, the less you get in retirement

As everyone knows - or should know by now - the more you pay in super fees the less you get in retirement. While MySuper rules have forced fees down for default products, once you select other investment options all bets are off.

Default funds cost about 1% thanks to the previous Labor government's initiative to make funds more transparent, easy to compare and cost effective. Its aim was to protect disengaged members and ensure they weren't overcharged.

This was done by means of a simple "dashboard" that included fees, costs and net returns using standardised information.

The result? Super fees fell by 40% on the retail products owned by the big financial institutions, bringing them into line with industry funds.

But it's a different matter once you leave the safety of default funds. An analysis by independent researcher SuperRatings shows retail funds charge between 85% and 300% more than not-for-profit (NFP) funds when it comes to "choice" products.

For example, if you invest $50,000 in a retail fund's cash option, the median cost is $673 a year compared with $215 for an industry fund. On $250,000 the difference is $2947 versus $750. A capital stable option will cost you almost 150% more in a retail fund. On $50,000 it is $870 versus $357 for a NFP; on $250,000 it is $3725 versus $1503.

The comprehensive study, commissioned by the Australian Institute of Superannuation Trustees, compared thousands of choice products, covering high growth, growth, balanced, conservative balanced, capital stable, secure, Australian shares, international shares, property, diversified fixed interest and cash. SuperRatings found NFPs outperformed the retail sector over seven and 10 years in all these options. The same applied to three and five years, except for international shares and property.

Unlike the fee cuts seen with MySuper, choice products have shown minimal changes. Originally the dashboard framework was meant to include choice products but this was postponed until 2016. In December the government announced proposals to extend greater transparency to choice.

However, retail platforms have been given a "carve-out" and will only have to provide dashboards for their top 10 options. The institutions say their products are highly complex and cannot be readily compared. They also argue this approach will improve transparency without introducing an excessive compliance burden.

The carve-out will affect 72% of choice product options, according to Rainmaker. Tom Garcia, the chief executive of the Institute of Superannuation Trustees, says the proposals fall well short of what is needed in a compulsory system and denies consumers the tools they need to make an informed decision.

"Until we get better and more uniform disclosure across the super sector, many consumers will remain in the dark," he says.

"It is a concern that potentially thousands of members of choice products are paying higher fees than necessary for products that are underperforming. Because super is such a long-term investment, even a small difference in fees can have a big impact at retirement. If a fund is overcharging by just 0.5% a year, it could mean missing out on $50,000 at retirement."

A $30 billion bonanza

According to researcher Rainmaker, the super industry earned an estimated $30 billion in revenue in 2014-15. Not-for-profits, which account for 41% of funds under management, drew 37% of these super fees, mostly from MySuper products.

By contrast, retail funds, with 30% of funds under management, drew 52% of fees with most related to choice products invested via platforms. Almost $4 billion is still being paid in commissions, says the research.

Choice fees are opaque, says Tom Garcia, the chief executive of the Australian Institute of Superannuation Trustees.

"In a compulsory super system, consumers deserve better and need a lot more protection than they currently have. All super products - MySuper and choice - should be able to be compared. There also should be greater uniformity in the definition of fees."

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