Super Stressful

Question


Hi Scott,

I am 27 and earn $95,000 a year, so my super is adding up. But I received my annual superannuation statement and found I am being charged three separate fees: administration fees (0.37%), investment fees (0.25%) and something called ‘indirect costs’ (0.64%). In your book you recommend paying no more than 0.85% in fees on super: does that refer to any type of fee charged, or only administration and investment fees? And do you have any idea what indirect costs are?

Lisa

Scott's Answer


Hey Lisa,

Good on you for being one of the few people who bothers to look at this stuff.

ASIC defines ‘indirect costs’ as costs “paid by your super fund to external providers that affects the value of your investment. Typically these are costs paid to investment managers.”

Bottom line? It’s another fee. All up, you are being slugged 1.26% of your balance each year.

If you’ve currently got $40,000 in super, that’s around $500 a year.

That doesn’t sound like much.

Yet, as a back-of-the-envelope calculation (6% real return, not factoring in tax), your super will grow to around $720,000 over the next four decades. However, the negative effect of the compounding fees will be roughly $220,000!

You’ve done the hard work by wading through the complicated, boring guff. Now comes the most profitable call you’ll ever make: call your fund and ask them if they have a high-growth, low-cost index super offering ‒ preferably one that charges less than 0.85% in fees, total.

Scott