Superannuation funds in Australia now manage over $4 trillion of retirement savings, more than double the amount they managed a decade ago. With such massive scale, you’d expect super fees to come down and funds to become cheaper for members. After all, investing is a business with almost no variable costs. Yet, some of the largest super funds still charge over 1% per year, despite advancements in technology, automation, and index investing. Over 10 years ago, Stockspot released the first fat cat funds report, where we called out high fee, low performing super funds. Yet despite significant time passing and fund sizes growing, fees are seemingly not falling.
So, why aren’t super fees getting significantly cheaper? The answer lies in two key factors that most Australians don’t realise.
1. Most Australians don’t check their super fees
For most people, superannuation is something they don’t think about often. Unlike a home loan, electricity bill, or internet plan, which people actively compare and switch to get a better deal, super is a set-and-forget product for many.
- Roughly 60% of Australians are in default super options and many don’t even know what they’re paying in fees.
- Many Aussies assume their employer has chosen a low-cost or high-performing fund for them, but that’s not always the case with employer default selections.
- Super funds don’t face pressure from consumers switching to cheaper options, as super lacks price sensitivity due to its lack of engagement, meaning there’s little competition on fees.
Lack of competition means higher costs
If Australians actively compared super funds the way they do with health insurance or mortgage rates, fees would likely be lower. But since most people stay in the same fund for decades, super funds aren’t incentivised to lower fees.Large super funds have grown their assets significantly, with the top 6 super funds each managing over $100 billion in assets according to APRA (as at 30 June 2024), yet many funds have not significantly reduced their percentage-based fees. Instead, they continue charging the same rates while enjoying massive revenue growth.
2. Super funds make more money by keeping fees high
Super funds charge a percentage-based fee on the total amount of assets under management. This means that as super balances grow, so do the fees collected.
- More assets = more revenue for the fund.
- Instead of passing on cost savings, many funds increase salaries, expand offices, and spend more on marketing.
- Many large super funds sponsor sports teams, buy expensive advertising, and expand their operations, focusing on self-promotion instead of lowering costs for members.
Bigger funds, but not cheaper
The biggest super funds have continued to attract more members and grow in size, but their fees don’t reflect their increased scale. Instead of sharing economies of scale with members, many funds increase their internal costs by hiring more investment staff despite there being little evidence that more investment headcount directly benefits their members.
How can Australians avoid high super fees?
Even though super funds aren’t getting cheaper overall, Australians can take action to minimise their fees and maximise long-term returns.
Compare fees between super funds
Not all super funds charge the same fees. Many industry funds still charge over 1% p.a., while some index-based super funds are more competitive. Over the lifetime of your super, high fees can erode your savings, and make a huge difference to your retirement. Also look out for hidden fees and try to avoid paying them.
We’ve compared some of the top super funds including Australian Retirement Trust (ART), AustralianSuper, Aware, Colonial First State (CFS), Hesta, HostPlus, MLC/Insignia, Mercer, Rest and UniSuper.
Consider low-cost, passive super options
Index-based super funds and ETF-focused super products generally charge lower fees than actively managed funds. They don’t have high-performance fees, and they benefit from lower transaction costs.
Check if you’re paying for unnecessary extras
Some funds charge extra fees for investment switching, or account admin. If you’re not using these services, you could be paying more than necessary.
A smarter way to invest your super
If you’re looking for a low-cost, transparent, and tax-efficient way to grow your super, Stockspot’s super product offers an alternative to traditional super funds. Stockspot super product:
- Uses a low-cost ETF-based approach to keep fees down
- Ensures tax efficiency by minimising unnecessary capital gains tax (CGT) drag
- Avoids hidden performance fees and marketing costs that don’t benefit members
- Provides full transparency over where your money is invested
Start maximising your super today
Super is one of the biggest financial assets you’ll ever own, and small changes to your fees or performance can mean tens or even hundreds of thousands of dollars more in retirement.
