Based on our research into hundreds of Australian superannuation funds since 2013, we believe Australians should focus on two key factors when choosing a super fund: selecting an investment strategy that aligns with their age and risk capacity, and ensuring fees remain low.
While market performance is beyond your control, managing costs is one of the most effective ways to maximise long term returns. Lower fees reduce the drag on your investments, increasing the likelihood of better long-term outcomes. Our research consistently shows that super funds charging less than 1% p.a. tend to perform better over time, while higher-cost funds struggle to justify their fees.
What are the hidden fees in superannuation funds?
Here are three biggest hidden super fees we’ve identified in our research – and how you can avoid them.
1. Active manager performance fees that only work in their favour
Many actively managed super funds charge performance fees in good years but don’t refund them when they underperform in bad years. This is great if you’re a fund manager but bad news for super fund members, who continue paying fees regardless of whether the fund delivers good long-term results. So, are active superannuation funds worth the performance fees? Given that 80% of active fund managers underperform over time, these performance fees can be a significant drag on your super balance.
How to avoid it: Be wary of funds that charge any kind of performance fees. Instead, consider low-cost index funds or ETFs, which don’t charge performance fees and have consistently outperformed most active managers over the long run. In this article we discuss why Stockspot avoids active fund managers and how active management fees can impact returns.
2. The cost of tax drag
Many super funds provision for capital gains tax (CGT) within the unit price, meaning all members contribute to a CGT reserve that is used when assets are sold. While this may seem fair, it often results in long-term investors who hold until pension phase subsidising those who trade more frequently or exit the fund.
If you’re a buy-and-hold investor, you could be paying for CGT liabilities triggered by others members’ decisions, even if you haven’t sold a single asset yourself until you are retired and in the ‘tax free’ environment.
Why does tax matter for your retirement? This inbuilt tax provision unfairly reduces your returns and creates a tax drag that can compound over time – meaning you’re not fully benefiting from Australia’s fantastic tax benefits within super.
How to avoid it: Look for funds that don’t provision for CGT in the unit price or, better yet, consider a super structure where tax liabilities are tied directly to your own investment actions, such as Stockspot Super. With an individual account structure and a focus on ETFs, Stockspot ensures that tax drag is minimised so you aren’t unfairly paying for the trading decisions of others. ETFs are also more tax efficient than actively managed funds because they have lower portfolio turnover. This means fewer realised capital gains, so you end up paying less in taxes.
In this article we discuss the impact of his hidden cost in more detail.
3. The hidden costs of unlisted assets
In 2020, ASIC rolled back key parts of RG 97, a regulation designed to improve fee transparency in super. This change allowed funds with high allocations to unlisted assets – such as property, infrastructure, and private equity – to exclude certain costs from their fee disclosures. While listed assets like ETFs and REITs must fully disclose their costs, unlisted investments can now hide some operational expenses, making them appear cheaper than they really are. This means super members may be paying more in fees than they realise, simply because those costs aren’t being reported.
How to avoid it: If your super fund has a high percentage of unlisted assets, it’s worth questioning whether the reported fees truly reflect what you’re paying. Comparing their long-term performance against similar property and infrastructure ETFs (such as REIT, VAP and IFRA), which fully disclose all costs, can help you see the real difference.
The bottom line
Many super funds aren’t as cheap as they claim to be. Hidden fees from tax drag, unlisted assets, and unfair performance fees can quietly erode your retirement savings. The best way to avoid these traps in your superannuation is to look for low-cost, transparent investment options – like ETFs – that don’t disguise their true costs. The more you save on superannuation fees, the more you’ll have for retirement.
