Super Pension fees

[Bridgeman]

I recently transferred one of my private pension to an Oz super fund and am in the process of taking advice re investments to convert it to a pension fund so I can start taking payments. The statement of advice gives the ongoing costs as around 1.47% per annum which will be deducted by the super managing company. I find this a bit excessive. Is this normal?

[Andrew from Vista Financial]

Hi Bridgeman

 

First things first, when did you cease being a UK tax resident please?

[Bridgeman]

Hi Andrew

Thanks for replying. I became a permanent Australian resident in February 2012 on a Contributory Parent visa, and was on a temporary CPV before that since June 2011. I have recently transferred one of my pensions over to a QROPS qualifying company and am hoping to start drawing from it asap.

[Andrew from Vista Financial]

Hi Bridgeman

 

Where were you before arriving in Australia?

 

The QROPS rules mean that if someone has transferred out of the UK and into a QROPS and withdraw monies that do not fall in line with UK provision whilst still within 5 full tax years of being a non UK tax resident than this is classed as an unauthorised payment.

 

Unauthorised Payments are thus a breach and attract taxation by HMRC at up to 55%.

 

Are you aware of this?

[Bridgeman]

Yes, I am aware of this. Presumably this means that I can only take out up to 25% of the value of the pension in the next five years which is in line with what I am planning. I have used an advisor for the process who has provided me with a statement of advice as to how the super should be invested when the super account is rolled over into a pension account. As I am unfamiliar with Australian super managing companies I am trying to get an idea of/second opinion on whether the level of ongoing annual management fees quoted is reasonable and whether all companies charge around this level.

[Andrew from Vista Financial]

Hi Bridgeman

 

Thanks, I just wanted to check that you were aware of the QROPS rules.

 

Therefore to the question in hand regarding fees.

 

It's a bit of a how long is a piece of string question really as it is based on lots of variables.

 

Generally Advisers that are not Industry Fund Advisers will use Retail Supers/Pensions and Wraps/Platforms.

 

With a retail Super/Pension you are more likely to be invested into a multi-asset type fund i.e Colonial First State Balanced Fund and the fees associated with these type funds will range but as a guide the Management Expense Ratio (MER) might be around 0.8% - 1.0%.

 

This could be lower if you were using an index fund manager as opposed to an active fund manager and then the fee might be around 0.5% - 0.7%.

 

 

A Wrap or Platform account has a further fee in addition to the management fees as it is an administrative platform and usually offers the ability to invest in Direct Shares, Exchange Traded Funds and Wholesale Managed Funds as well as Term Deposits.

 

The admin fee is usually tiered and so is suited for clients with bigger balances say $300k+ or who have greater investment needs and require the ability to invest outside of just managed funds or wish to have access to a greater variety of managed funds.

 

If the 1.47% you are quoting does not include Adviser fees and is purely for the Pension product I would suggest that you are invested in a Wrap, BT Wrap, First Wrap Colonial, MLC Wrap and Macquarie Wrap are some of the bigger Wraps out there.

 

 

With a Wrap/Platform Product the Managed Fund Fees can range from 0.2% to around 2% but with an average of say 0.9%, Exchange Traded Funds average around 0.3% and Direct Shares have no Management Fee, neither do Term Deposits.

 

It will also be based upon your investment approach as generally the more aggressive someone is invested the higher the fees, this is because growth and high growth portfolios have a higher weighting towards shares and property whereas less aggressive portfolios i.e moderately defensive and defensive have more holdings of bonds and cash which cost less to manage.

 

One last thing, yes of course fees do have an impact but should not be the only measure for example fees could be 1.1% for someone in a Wrap with a very diversified portfolio and constructed to cater for their needs but only 0.7% in a Retail or Industry Fund, this does not mean that the Retail or Industry Fund is better or will outperform.

 

Obviously I have limited information about your situation i.e balance, investor profile, portfolio recommended etc but hope this provides some help.

 

Regards

 

Andy

[Bridgeman]

Thank you, that's very informative. It's a wrap scheme so it looks like the fees are in line with what is normal.