Rising Fees Devouring Super Accounts

Everybody loves to compare superannuation returns as a basis for either boasting about their own fund or throwing shade at competing funds.

However, while good long-term investment returns are certainly an important factor in choosing a super fund, looking at the level of fees is also vital to maximise net returns.

And that has become even more important because investment and administration fees have been rising strongly recently—pushed higher partly by regulatory pressures after the high-profile failures of Shield and First Guardian, along with an increasing trend towards self-managed funds by some people with low balances.

Even Small Fee Rises Add up

Some recent analysis by Vanguard Australia showed the importance of making sure your fund has low fees, showing that even a marginal fee increase can reduce your final super balance by $77,000 in retirement.

That calculation is for a full-time worker paying an extra 0.5 percentage points in fees each year, which over time can rob them up to 12.5% of their total balance.

The modelling compared two hypothetical MySuper scenarios for a member aged 25 with a starting balance of $24,004 and starting salary of $83,200, retiring at age 67.

Both scenarios assumed a 6.4% nominal annual investment return, Superannuation Guarantee contributions of 12% and standard tax and life insurance costs of $1,733.

The only difference was fees from one account charged 0.56% a year while the other charged 1.06% a year.

With the average super fund charging around 0.9% a year, Vanguard found members may overpay without realising the long-term impact.

Difficult to Identify

Vanguard Australia chief of personal investor Renae Smith said while Australians are careful about comparing mortgages, and energy and insurance bills, they struggled with super fees because “it's still far too hard to work out what you're actually paying."

Smith said the start of a new financial year was “an ideal time for people to engage with their super and take a close look at all the fees they are paying."

Smith said the fee confusion was understandable given that super funds can charge up to six different types of fees, including administration, investment, transaction, insurance and activity-based charges.

This meant that 60% of super fund members were confused by these costs and lack confidence in explaining them.

"Reviewing your super fees is one of the key steps you can take to improve your long-term outcome. But people don't find it easy to compare, because the industry doesn't make it easy," she said.

$1.1b Rise in the Past Two Years

The importance of keeping fees low was shown by some other recent figures which showed that there has been an unwelcome $1.1 billion surge in advice fees deducted from Australians' superannuation accounts over the past two years.

Partly this was due to an increase in younger members switching into higher cost products such as SMSFs when it was arguably not appropriate for their lower balances.

Analysis by the Super Members Council (SMC) found advice fees deducted from super accounts increased sharply between 2023 and 2025, with five super platforms accounting for $815 million of the increase.

These platforms often service financial planners and SMSF funds and were also instrumental in quickly expanding the damage caused by the Shield and First Guardian collapses.

SMC said the rise of super switching activity had seen many younger Australians with balances below $100,000 move into SMSFs or platform products that carried significantly higher costs.

The analysis showed that SMSF operating costs for members with less than $100,000 in super are between 18 and 40 times higher than remaining in a MySuper product offered by an APRA-regulated fund.

Costs only become broadly comparable between the two alternatives when balances approach $2m.

Crucial for Younger Australians

SMC chief executive Misha Schubert said the financial impact on younger Australians could be substantial.

"The switching risks can be very significant for younger Australians with a modest amount of super, because higher fees can seriously eat away at their retirement savings at a pivotal stage for their super," Schubert said.

SMC's submission to the federal government's consultation following the collapses of Shield and First Guardian also found the growth rate in advice fees had nearly tripled over the past two years, reinforcing the need for stronger oversight of advice fee deductions.

It is calling for fee caps, enhanced trustee oversight, greater transparency across super products, minimum balance thresholds, and warning mechanisms for SMSF’s, and faster implementation of the Delivering Better Financial Outcomes reforms.

Schubert said access to financial advice remained important, but stronger safeguards were needed.

"Great advice plays a really important role in helping Australians build their retirement savings, but it's also crucial that every advice fee deducted is always reasonable and proportionate, and that the oversights are universally high to ensure that is the case," she said.

The analysis also found SMSFs with balances of $100,000 or less delivered average annual investment returns of negative 9.5% over the past decade, compared with positive 7.0% for profit to member funds.