The price of admission into superannuation in Australia

Accessing the tax-effective super environment involves administration time and expense. From going it alone with a Self-Managed Super Fund to defaulting into the AustralianSuper Balanced Option, admin time and fees vary materially. Price points across Netflix subscriptions vary materially, too – you pay $6.99/month for standard with ads compared with $22.99/month for premium. Consumers understand that the different price points meet individual viewing preferences. Superannuation admin fees are no different. This Morningstar Superannuation Supplement unpacks the range of access points to superannuation, the range of administration fees across those access points, and the impact to net returns.

The different ways to access super

The SMSF is a popular, do-it-yourself access point to super, with assets totalling almost AUD 870 billion last year. SMSFs allow investors a vast investment universe and a level of personalisation that is unparalleled—but they are certainly not do-it-yourself-for-free. There are establishment fees; ongoing regulatory costs such as Australian Taxation Office supervisory fees; accounting fees; and possibly an online investment platform to help keep track of your investments. And don’t forget the personal time you’ll likely expend as a trustee. For some investors, the flexibility and tailoring are worth it, but for a lot of investors, SMSFs are a step too far—the time, cost, and complexity are too much for the reward.

At the other end of the spectrum are the “MySuper” and the current “Choice” cohorts as defined by the regulator. These groups represent over AUD 1.1 trillion of the approximately AUD 3 trillion that Australians have invested in super. So, what’s the difference between MySuper and Choice? The 69 investment options captured in the “MySuper” heatmap are simply the low-cost, default options offered to members. Conversely, there are over 1,000 investment options captured in the 2022 “Choice” heatmap. They are typically multisector options commonly offered through a fund’s "generic" investment menu. The easiest example is to use AustralianSuper—its default multi-asset “Balanced option” is captured in the “MySuper” heatmap; its multi-asset High Growth, Conservative Balanced, Stable, Index Diversified, and Socially Aware options are captured in the 2022 “Choice” heatmap.

There are a range of services offered across these two cohorts in exchange for the administration fee. The main service offered is the operation of a superannuation fund versus an SMSF that you are running yourself. Investors can access the tax-effective world of superannuation, a range of investment options that are fully administered, insurances, and investor reporting, support services, and education. While investment fees paid for an investment option and insurance premiums are a different matter, administering an investment option or insurance product in super is not free. Dealing with incoming contributions, members switching between options, and members switching out of the fund incurs costs that need to be covered. Basically, all the non-investment-related costs, including the significant regulatory impost to run a fund, are covered in the admin fee.

In the middle of the spectrum is another cohort of Australians who want more flexibility than a default option but not the responsibility of an SMSF. They could be advised or self-directed and typically opt for more-sophisticated investment platforms. For example, a fully advised offering on an investment platform (HUB24, Netwealth, Macquarie, Colonial First State, and BT, among others) that offers tailored managed accounts and comprehensive investment menus (including shares, ETFs, many funds, and term deposits), complete with sophisticated portals and reporting.

Superannuation access points sit across a spectrum, and what’s offered varies greatly. And unlike Netflix’s easily comparable options, there are many details to consider.

The range of admin fees

So, what should you expect to pay for these different access points to superannuation?

In the Rice Warner Report: Cost of Operating SMSFs 2020 , it was estimated that SMSF admin fees range from around $1,200 a year (for compliance admin) to $3,000 a year (for full admin). This doesn’t consider the cost of your time as a trustee, which should not be underestimated when it comes to an SMSF. The report also outlines the levels of superannuation assets required to justify the higher levels of admin fees relative to other options.

In the APRA Heatmap Insights Papers, the Choice Dashboard shows that the average annual administration fee for MySuper options is $137 compared with $149 for “open” Choice options (based on a $50,000 account balance). Averages can hide a lot, though. The maximum admin fee of a MySuper option comes in at $375 a year; it is $565 a year for an “open” Choice option. Exhibit 1 shows that while many Choice options cluster around the price points of $100 - $250 a year, there are plenty that are more expensive.

Finally, the premium platform option. While there are no easily accessible "average" costs for this cohort and the fee disclosures make comparisons tricky, the Netwealth Super Accelerator Plus Product Disclosure Statement (September 2022) provides a good example. It shows an administrative fee of around $583 a year. For that admin fee, you can access direct international equities, Australian equities, term deposits, and a very broad menu of managed funds and managed accounts. There is significant scope to tailor an investment portfolio here. It’s also worth noting that many advisors negotiate bespoke fee arrangements for premium platforms, and the cost of this access point may be lower through your advisor.

Exhibit 2 displays the spectrum of admin fees across the different access points discussed in this paper. The key takeout is that the range is wide. And that’s why it is important to understand what you need and pay an appropriate price for that service.

Administration fees reduce returns

The more you pay in admin fees, the lower the net return you will receive over time. This means less money in retirement. And given the power of compounding, every dollar counts. But administration fees are the price of admission to superannuation. They are an inevitable cost to access a tax-effective environment. Some people need the standard subscription with ads, while others prefer a premium subscription. What’s important is that you understand your own needs when it comes to super and pay for what you need. Admin fees matter, and they vary materially, so make sure you understand what you’re paying for and why.