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How to choose a super fund with lower fees

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By John Beveridge - 
Superannuation fund charges low fees Australia retail income

Making sure that your superannuation fund charges low fees is one of the most important things the average person can do to make sure they are in a good fund.

But what represents a low fee now and how do you go about finding a good fund that pairs strong investment performance with low fees?

Well, the first thing to note is the really good news that super investment fees are now lower than they have ever been.

Where once a good fund that charged 1.5% might have been in the ballpark, that fund should now be widely seen as highly uncompetitive on fees.

Average fees fall below 1%

The latest Rainmaker Information analysis of more than 1500 super funds showed that fees have retreated by another 2% in the past year, reaching an average total expense ratio of 0.93% per year.

So that is where you should set your search criteria if you are thinking of changing funds, with those funds that have fees below that average number being the ones you should be aiming for, unless there are some really compelling investment return reasons for choosing a fund with higher than average fees.

As you would expect given the voluntary labour and higher balances involved, self-managed super funds (SMSFs) are the least expensive segment with average fees of 0.65% a year, with default MySuper options which cover the majority of workers showing average fees of 1% a year as of June 30.

These funds showed a significant reduction over the year, falling from 1.05% over the year as funds got bigger and the number of MySuper options reduced.

Retail funds now competitive on fees with not-for-profit funds

These changes might seem small but they are really important over the long terms that superannuation funds are invested over so it is significant that MySuper fees for both retail and not for profit funds have now drawn level.

This has happened because, in general terms, not-for-profit MySuper funds generally have lower administration fees while retail MySuper funds often offer lower investment fees.

Look for fees below 0.93% and solid, long-term returns

So, what this all means for someone looking for a new super fund, they should be looking for a good record of returns over the longer term, say, five or ten years and total administration and investment fees that are below the latest average of 0.93% a year.

The combination of low fees and strong investment performance is a really important one in superannuation and tends to indicate a well-formed and consistent investment process and a focus on keeping costs down for members.

The average annual fees on personal and retirement products were a little higher at 1.16% and 1.07%, respectively.

Overall fee income is still rising

There are still some clouds on the horizon despite the positive trend towards lower fees which shows the effectiveness of stronger oversight by ASIC and greater competition between funds.

One issue was that despite lower total expense ratios, the larger total super pile of $3.5 trillion compared to $3.3 trillion still meant that total fees are rising twice as fast as funds under management, with total fees up 3% to $32 billion.

That tends to suggest that the economies of scale as smaller funds are amalgamated has run its course and that it will be harder from here for funds to keep cutting their fees.

Despite that caveat, however, from the consumer perspective the many years of falling fees is still great news and while many of the easy gains in lowering fees may be behind us, it is important that downward pressure on fees remains strong.