Q: I see lots of ads on TV comparing equivalent workers and superannuation. One is in an industry fund and the other in a so-called retail fund. The amount they end up retiring on is vastly different and we're told it's due to the fees. How
do I know what my fund is?

Tarsha, WA.

A: Good question. Every working Australian has nine per cent of their salary paid into super by their bosses under the compulsory superannuation guarantee system. You have a choice on where that money is invested. Either into the boss' corporate superannuation fund, into a fund run by your industry association/trade union, or into your own personal superannuation, which you've organised through your bank or another retail financial institution.

Fee-free?

No matter where your superannuation contributions go, you'll be charged a fee for managing that money and for administration to run the fund. But these fee levels can change markedly.

Generally, industry super funds have the lowest fees, followed
by the boss' corporate fund, while retail superannuation funds have the highest fees. The reason the retail funds have higher fees than others is often because they pay a financial adviser or accountant a commission for recommending you put your money with them.

While that commission tucked away in your annual fee seems small at 0.5 per cent a year, it does add up. Research group, Rainmaker Information found that 0.5 per cent commission each year reduces your retirement payout by $120,000.

Time to speak up

Super funds should be cutting their fees. Compulsory super means funds are guaranteed a flow of money each year, but they're not passing on the cost benefits of getting bigger.

Most charge an annual fee as a percentage of funds under management, but the costs of managing $4 billion is not twice as much as $2 billion. Many of them aren't passing on the cost benefits. Plus, technology means administering the fund is getting cheaper, and those cost benefits aren't flowing through either.

No wonder the big financial institutions are reporting big profits. This is where it's coming from - you and me - and it has to stop!

For more finance advice from David Koch, check out New Idea this week