With the calendar ticking over into July, superfunds are busy closing out the financial year and preparing their financial accounts, audit and regulatory reporting to APRA and the ATO. They will also be preparing to send out their Annual Statements to members, providing details to members of how their super balance changed during the financial year just past.
This will include details of the money that came into the account, such as employer (SG) and member contributions, as well as the money that went out such as insurance premiums and fees. It will also show how the balance changed due to the changes in value of the underlying investments.
It is important to check your statement carefully to ensure you understand what is happening with your super and that it is meeting your expectations.
No one likes paying fees, and many people will look at their super annual statement and wonder “What do the fees get me?”.
We break down a range of fees typically found in superannuation, and provide an explanation of each.
Management costs will generally be split into two components: Administration Fee and Investment Management Fee (see below). Different funds have different fee structures so it pays to check the fees and costs when joining a fund or checking your account. At Virgin Super, members are not charged joining, contributions or exit fees.
Administration Fees will generally cover the cost of administering the fund. That is, the costs of maintaining the superannuation fund, which includes the people to process the contributions as they come in, the call centres to answer member calls and deal with member queries, systems to keep track of your balance and the online systems to give you 24/7 access to your super account. This will also include the cost involved in meeting the regulatory requirements involved in operating a super fund and meeting the ongoing reporting requirements.
For Virgin Super, the administration fee is dependent upon the product which you are a member of (see below):
- Virgin Super Essentials: Fixed weekly Member Fee of $1.50 per week, plus 0.50%p.a. of your super balance per year
- Virgin Super Plus: Fixed weekly Member Fee of $1.50 per week, plus a tiered percentage fee applied to your investments, which reduces the higher your balance
- Frequency: Charged monthly in arrears
Investment Management Fee
The Investment Management Fee covers the cost of managing the money, including the cost of holding the investments in safe custody (which is a regulatory requirement). It takes great care and expertise to intelligently research, select and optimise each investment strategy, such as the LifeStage Tracker® – Balanced and Aggressive programs, which both allocate investments on your behalf.
For Virgin Super, the investment management fee is:
- Cost: 0.30%p.a. of your balance, per year
- Frequency: Charged monthly in arrears
Sometimes unexpected costs arise during the course of a super fund’s life, so we established a fund reserve to help cover some of these costs as they come up. This is accomplished by modifying the unit price (how much your super is worth) and allocating a portion of your fund to the reserve. For example, the costs associated with complying with the recent government mandated Stronger Super changes which included SuperStream reforms could be included as an expense. The indirect cost can also be attributed to creating capital reserves, such as an Operational Financial Risk Reserve (OFRR), which all superfunds are required to maintain.
For Virgin Super, the indirect cost is:
- Cost: 0.15% of your total balance per year. Once the fund has met its OFRR requirements and has an expense reserve buffer, the indirect cost will no longer be levied.
Frequency: Deducted quarterly from the assets of the Fund and reflected in the unit price.
For a more detailed explanation, see page 38 of the Member Guide.
Activity Fees and other fee information
Some super funds will also charge you an Activity Fee. This can include fees to switch investments or fees to withdraw your money (you can only withdraw your money if you have met specific conditions defined by the government, such as reaching retirement age). At Virgin Super, you won’t be charged fees for everyday transactions such as switching or withdrawing. While there are no contribution, withdrawal or switching fees, a buy/sell spread applies at a fund level when purchasing and selling units. However, Virgin Super will charge a fee for specialist transactions such as arranging a transfer from an overseas pension fund, or implementing a family law split. See page 38 of the Member Guide
If you have insurance cover through your super, this will incur an Insurance Fee, depending on your level of cover. For more information, refer to the PDS and check out the Virgin Super Insurance Guide. For more information on the subject, check out this related blog topic: ‘Insurance in superannuation‘.
Switching to a super provider with fees more in line with your lifestyle can save you money. In fact, MoneySmart states a 1% difference in fees now could be as big as a 20% difference in three decades.
How do you currently feel about superannuation fees?