The way retirement fund fees are structured can quietly erode decades of savings, making costs a critical factor in determining retirement outcomes.
While companies often focus on headline levies and asset-based fees, the reality is far more complex — their differing effects can significantly shape employees’ long-term financial security.
Why this matters is that retirement-fund costs are not just another line in the company accounts. They have a huge impact on what members take home after decades of saving. And while the numbers may appear simple in a cost schedule, the way those fees are applied and how they compound over time ultimately determines outcomes.
That is why fiduciaries – trustees, management committees and company sponsors – carry a particular responsibility: to understand how costs work, to interrogate them properly, and to ensure members’ savings are not quietly eroded by charges that look harmless on paper but prove punishing over time.
The many faces of retirement fund costs
Corporate retirement funds carry three broad types of expense: administration, advice and investment. Each is calculated on a different basis and carries a different weight, which complicates meaningful comparison.
Administration costs are usually billed per member per month, or as a percentage of payroll. Advice fees may also be linked to payroll, though some are expressed as a percentage of assets. Investment costs are almost always tied to assets, typically as a flat percentage but sometimes with additional layers such as performance fees or consulting charges.
When these costs are reported, they often appear side by side without adjustment, as a per-member rand charge, a payroll percentage, and an asset-based fee. Without a way to put them on the same footing, it’s easy to assume they can be added together. Some advisers may present the numbers this way. But each fee type works differently, and the impact on members can vary dramatically depending on the structure.
Retirement-fund costs are much like an onion: only once you cut through the layers, can you see what lies beneath the surface. Beyond the headline fees sit performance charges triggered when benchmarks are met, spreads and trading costs buried in pooled funds, and revenue from scrip lending that managers may or may not share with investors. Legacy umbrella funds add yet another layer of opacity, with limited disclosure of their true investment costs.
By contrast, newer open-architecture umbrellas spell out every cost in detail. Paradoxically, that very transparency can make them look more expensive, simply because every charge is clearly itemised.
It’s a messy picture, which explains why percentages should never be taken at face value.
Disproportionate impact
Back to my earlier point about payroll versus asset fees: The example of the payroll levy and the asset fee brings the issue into focus. Both may be quoted as “1%”, but their impact is worlds apart.
A payroll-based fee is simple enough. If contributions are set at 10% of salary and 1% is diverted to cover costs, only 9% reaches the fund. By the end of a person’s career, the member retires with about 10% (10 / 9 – 1) less than they otherwise would. Its impact is clear, easy to quantify, and it has no further effect on their returns.
But an asset-based fee works in a very different way. That 1% annual charge compounds year after year, cutting into this year’s return and all the growth that would have been earned on it in the future. Over a 40-year career, that one percentage point can strip 30% or more from a member’s savings.
On paper, both fees are “1%”. In practice, one is a haircut; the other a slow bleed that sucks the life out of an investment. Yet they are often presented as if they were the same.
This distinction matters because real returns are limited. Balanced portfolios typically deliver around 5% above inflation over the long run. Against that backdrop, a 1% annual investment fee consumes a fifth of the expected real return. That’s a particularly heavy toll.
Why governance must focus on costs
For companies and trustees, the issue is not whether costs exist, because there is always a cost, but how they are structured, disclosed and allocated. Administration and advice need to be paid for, and investment management has a cost. The responsibility is to separate the fees that are necessary and proportionate from those that quietly erode member outcomes over time.
That means asking providers the right questions. Who bears the administration costs: the company, or members out of their contributions? How exactly are advice fees calculated, and do they increase proportionate to the growth of the assets? Are there performance fees in the investment layer, and how are they capped? And what happens to income from scrip lending, where funds earn money by lending out shares, bonds or derivatives – is it passed back to members, or kept by the manager?
Emma Montocchio 15 Oct 2025 It also means demanding disclosure that shows not just what the fees are today, but what they will mean over time. Providers should disclose the impact of costs over time as per the Retirement Savings Costs (RSC) standard which models the effect of their fee structures over realistic periods – based on the same assumptions and including every charge. Only then can companies make fair comparisons between platforms.
Without this, they risk choosing on the basis of incomplete or even misleading figures.
The fiduciary duty of trustees and sponsors is not to gamble on the chance of outsized returns, but to maximise the likelihood that members reach their retirement-income goals.
With long-term real returns typically only around 5%, cutting unnecessary costs is one of the most effective ways to improve outcomes, without adding extra risk.
Retirement-fund costs may not be the most eye-catching items, but they are one of the most critical determinants of member outcomes – and they’re often hidden in plain sight.
Market returns will always be uncertain, but costs are not: they can be measured, managed and reduced. Every fraction of a percent matters, because in the end, it is members who carry the consequences.
