Super fees and home loan rates - check yours are manageable
THE old adage 'you pay for what you get' doesn't always hold true when it comes to money matters.
Paying high superannuation fees for instance doesn't guarantee your nest egg will earn higher returns. In fact, new research shows that over time, high super fees can leave workers out of pocket by as much as $192,000.
According to a study by ING DIRECT, Australian workers pay an average of 1.15% in annual super fees. Like all averages this figure doesn't tell the full story. In practice, fees on industry and retail super funds range from 0% to 2.33% annually.
This may not sound like a big difference but our super is a very long term investment, and over the course of a working life the impact of high fees can really escalate.
As a guide, the study found that a 30-year old man who has his super invested in a fund charging 0% fees could retire at age 65 with around $511,000 in accumulated super. If that same worker had his super in a fund charging annual fees of 2.33%, the final balance at age 65 could be about $319,000 - and that's assuming identical fund returns.
The astounding difference of $192,000 reflects the mounting impact of fund fees. Moreover, as super fees are typically charged as a percentage of our nest egg, the biggest impact is felt later in life as we approach retirement and have more in accumulated super. In other words, the more you have in super, the more you're likely to pay in annual fees in dollar terms.
The sting in the tail is that paying higher fees is no guarantee that your super will earn above average investment returns - something confirmed by the study's research.
Finding out what you are paying in super fees is easy. Contact your super fund over the phone; check out your fund details online; or just take a look at your most recent super statement.
If it turns out your super fund is at the more expensive end of the spectrum, it could be worth thinking about shifting to a lower fee fund. None of us can control investment markets but we all have the ability to decide how much we're prepared to pay in fund fees, and the good news is that switching funds is a lot easier than it used to be.
While you're checking out your super fees, take a moment to review the interest rate on your home loan. Some home loan lenders are dragging the chain when it comes to passing on the Reserve Bank's February rate cut.
While many lenders announced rate cuts last month, comparison site Finder says that as at mid-March around 40% of variable rate home loans were yet to pass on the cash rate cut to borrowers.
If your lender is one of the chain draggers, try approaching your bank for a 'please explain'. If that doesn't bring about any action, you have the option of refinancing your loan elsewhere.
Just as super is a long term asset, our mortgage is often a long term debt, and paying even slightly more in interest charges than necessary can significantly inflate the overall cost of owning your home.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.