The difference half a per cent in fees makes over a retirement

You know what you're paying to run your retirement income, in dollars, not just percentages. You've checked it against what a comparable option would cost. You've decided whether the difference is worth it, and you've moved on with your life. No nagging sense that something is quietly leaking out the side of the account every month while you're busy living.

That's the position worth getting to. Not fee obsession. Just knowing the number, understanding what it buys, and making a call.

Why the number hides

Fees in the drawdown phase are easy to lose track of, and it isn't carelessness.

During your working life, contributions arrive every quarter. The balance goes up. Fees come out, but they're swamped by money coming in, so the account still grows and the deductions never feel like much. Retirement flips that. Contributions stop. Money now flows one way only. Every dollar of fees is a dollar that isn't available to pay you, and it's coming out of a pool that has to last decades.

The other reason it hides is that fees rarely arrive as one clean figure. There's an administration fee, sometimes flat, sometimes a percentage, often both. There's an investment fee that varies by the option you're in. There may be indirect costs bundled into the investment return before you ever see it. A pension account can look cheap on one line and cost more once the others are added.

So the honest starting point is this. Most people in the retirement phase couldn't say, within a hundred dollars, what their pension account cost them last financial year. That isn't a failing. It's a design problem.

What half a per cent actually does

Here's the arithmetic, kept simple and kept general.

Take an account-based pension with a balance of $600,000. A fee gap of 0.5 per cent a year is $3,000 in the first year. That alone is a decent chunk of annual spending for most households.

But the first year understates it. The money taken out in fees isn't just gone. It also stops earning. And the money it would have earned stops earning. Over a twenty-five year retirement, that compounding effect on the gap is usually larger than the sum of the fees themselves.

Run it the other direction and it's easier to feel. Two accounts, same starting balance, same investment returns, same drawdown pattern, differing only by half a per cent in fees. The lower-fee account either supports a higher income for the same number of years, or the same income for more years. Over a long retirement, the difference commonly runs into tens of thousands of dollars. On larger balances and longer time frames, more than that.

That's an illustration, not a projection. Actual outcomes depend on returns, which vary and can be negative, on how much you draw, and on how long you live. The point isn't the exact figure. The point is that a number small enough to ignore on a statement is not small enough to ignore over twenty-five years.

There's a companion piece on this at How do fees affect my retirement income over time? if you want the longer version.

The part that's more interesting than the fee itself

Low fees are worth having. They are not the only thing worth having.

A cheaper option that puts you in an asset mix you can't live with through a downturn may cost you more in panic than it saves in fees. A more expensive option that includes a drawdown structure you'll actually use might earn its keep. The question isn't "which is cheapest". It's "what am I getting for the difference, and do I want it".

This is where your fund's default retirement option deserves a look rather than a shrug. Defaults are built for a broad membership, not for your particular balance, spouse situation or Age Pension position. That doesn't make them wrong. It makes them worth checking. More on that at How do I know if my fund's default retirement option is right for me?

It's also worth knowing that funds have obligations here. The Retirement Income Covenant requires trustees to have a strategy for helping members in retirement, which is part of why so many funds have been reworking their pension offerings. Background at What is the Retirement Income Covenant, and what does it mean for members?

How to get the number

Three steps, and none of them require a spreadsheet weekend.

First, find your total annual cost in dollars. Your annual statement and the product disclosure statement for your pension option will both help. Add administration, investment and any indirect costs. One figure.

Second, compare like with like. Same investment option risk level, same account balance, same features. Comparing a balanced pension option at one fund with a conservative one at another tells you very little. There's a walkthrough at How do I compare account-based pensions from different funds?

Third, decide what the gap buys. Sometimes it buys nothing and switching is straightforward. Sometimes it buys something you value. Either answer is fine, as long as you made it on purpose. Be aware that switching funds can have consequences worth checking first, including insurance inside super and the timing of your pension payments.

Proof

ASIC's Moneysmart publishes a retirement planner that lets you enter your own super fees and see how they affect your projected retirement income, at moneysmart.gov.au/retirement-income/retirement-planner (checked March 2025). It's free, it's government-run, and it lets you change one input at a time so you can see what half a per cent does over your own time frame.

Running that comparison tells you what the fee gap is worth. It doesn't tell you what to do with the balance you keep. Knowing your fees is one number. Knowing what to pay yourself each fortnight, how to adjust it after a bad market year, and whether it holds up across a long retirement is a different question, and that's the one SuperYears is built for. Set a spending floor and ceiling, and see how your drawdown behaves when markets don't cooperate, so you can spend with a clearer head.

Join the waitlist.

Information provided is general in nature and does not constitute personal financial advice. You should consider seeking advice from a licensed financial planner before making any financial decisions.