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Vanguard disrupts superannuation market with ultra-low fee pension product

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By John Beveridge - 
Vanguard superannuation market ultra-low fee pension product

Vanguard has really thrown down the gauntlet to the competition with the launch of its new pension product which severely undercuts most other super funds.

And, in the same way that Vanguard kicked off a fee war with the launch of its accumulation product, it’s now changing the retirement sphere with the fee on both products being set at just 0.58%.

While most super investment products charge around 1% on retirement products – sometimes quite a bit more – Vanguard is keeping the total fee on pension accounts the same as for the accumulation product at 0.58%.

Fees tumbling by close to half

With Rainmaker Information finding that the median fee on a retirement product in Australia on a balance of $100,000 is 1.07%, that would mean the Vanguard product is almost half the price of the median fund.

And in a sign that will send a shiver down the spines of rival fund managers, Vanguard will also look to reduce the fee on its accumulation and pension funds over time.

With fellow index fund provider Betashares also set to enter the super fund business after acquiring Bendigo and Adelaide Bank’s super arm, there looks set to be something of a price war coming for both accumulation and pension super funds.

The reason the large index fund providers can be so competitive on price is that they are already originating index funds, so they can slice and dice those funds into a super fund very cheaply.

Vanguard super hits $1 billion

While Vanguard has only been accepting money into its new super accumulation funds since launching in October 2022, it has already attracted more than $1 billion in funds under management.

Most of that money is in Vanguard Super’s lifecycle options, which automatically adjusts defensive versus growth risk according to the age of the member but it also allows members to choose pre-mixed options including high growth, ethically conscious growth, growth, balanced or conservative.

The performance signs are good for the lifecycle fund, with its first calendar year seeing it take out the top among default lifecycle options with a return of 14.7% for the December year.

Indexing funds performing well

That was better than some much bigger competitors including FirstChoice, Mine Super and TelstraSuper, with the median return for default Lifecycle options being 11.4%.

It would not be a surprise to see Vanguard’s super funds under management rise even faster this year, with the retirement options soon to be available to financial advisers once a new adviser portal is opened in coming months to match the existing MySuper portal.

While Vanguard is still an absolute minnow in the super space compared to giants such as AustralianSuper with more than $315 billion under management, it looks set to continue to grow strongly, driven by highly competitive fees and the attractive returns generated by index products.