While a typical member will earn almost half of their lifetime investment returns during retirement, they will also pay 55% of their lifetime fees over that same period, as identified in Rainmaker’s Superannuation Benchmarking Report.
A hypothetical member will pay $270,000 in contributions, retire with $820,000, and while they will pay $109,000 in fees through their accumulation phase, they will pay $124,000 in fees after retirement.
This scenario assumes a member begins employment at age 25 earning $50,000 p.a., they receive super guarantee contributions, pay industry average fees, earn a conservative 5% p.a. each year, retire at age 67 and draw down an income stream benchmarked to 67% of their pre retirement salary.
“While so much focus has been on the fees paid by fund members in their working life, the fact is that fund members will pay the biggest proportion of their total lifetime fees after they retire,” said Alex Dunnin, executive director of research and compliance and Rainmaker Information.
Given members are being charged percentage-based fees on their investment, which grows through the accumulation phase, poorly designed retirement products will cost billions of dollars in foregone income to Australian retirees.
Australian superannuation members paid $31 billion in investment fees in the year to 30 June 2022, with the average fee ratio dropping from 1.01% to 0.95% over the last year.
The total expense ratio for retirees with over $500,000 is 0.98% and 1.04% for retirees with less than $500,000.
“The Retirement Income Covenant has triggered a renewed focus on retirement and whether the superannuation fund sector is as prepared as it should be for the many millions of retired members coming their way,” said Dunnin.
“The trick will be to ensure the superannuation system can produce well-designed retirement products to enable retirees to keep accumulating wealth, insulating them from longevity risk,” said Dunnin.
While members pay 55% of their lifetime fees after they retire, they will draw down $1.3 million in benefits, almost $500,000 more than they retired with.
“This shows how crucial smart retirement product design is, as de-risking retiree portfolios too quickly has massively financial implications,” said Dunnin.
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Total risk market inflows were down a marginal 0.6% over the year to June 2024, decreasing from $18.3 billion to $18.2 billion.
Dual access ETPs, which are transacted both on stock exchanges and off-market through funds managers, can cost four times as much as the rest of the Australian ETP market.
