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$233,000: The not-so-super cost of retirement

A composite image of Australian $100 notes in cash and a crowd of people waking in the Sydney CBD to represent the money spent of superannuation fees.
Aussies will pay hundreds of thousands of dollars in superannuation fees over their lifetime. (Source: Getty)

Aussies who are stuck in a superannuation fund that charges high fees could be missing out on hundreds of thousands of dollars in retirement.

In fact, even a super fund that charges average fees will see members pay around $233,000 in fees over their lifetime, according to new research from Rainmaker.

Most retirees will actually pay more in fees during retirement than they would during all the years they were in their accumulation (working) phase.

While a typical member will earn almost half of their lifetime investment returns during retirement, they will also pay 55 per cent of their lifetime fees over that same period, Rainmaker’s Superannuation Benchmarking Report found.

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.

The scenario assumes a member begins employment at age 25, earning $50,000 a year. They receive super guarantee contributions, pay industry-average fees, earn a conservative 5 per cent each year, retire at age 67 and draw down an income stream benchmarked to 67 per cent 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,” Rainmaker executive director of research and compliance Alex Dunnin said.

The report found that poorly designed superannuation products would cost retirees billions of dollars in foregone income.

Australian superannuation members paid $31 billion in investment fees in the year to June 30, 2022.

“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,” Dunnin said.

“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.”

While members pay 55 per cent 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,” Dunnin said.

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