Retirement
Super terminology explained: Understanding the ICR
If you’re looking to optimise your retirement by finding the best super fund, you might come across something called the ICR. Here’s what you need to know about it.
Super terminology explained: Understanding the ICR
If you’re looking to optimise your retirement by finding the best super fund, you might come across something called the ICR. Here’s what you need to know about it.
What is the ICR?
In the world of superannuation funds, the acronym ICR stands for indirect cost ratio. It is most commonly used and found within the product disclosure statement of a given super fund.
The ICR is an estimate of the costs related to the management of a super fund. This can include stuff like management fees, performance fees, legal compliance and transactions costs plus any accounting or auditing fees.
The higher the ICR of a given fund, the more money the fund collects for itself. Importantly, though, the ICR is deducted from investment returns rather than your fund’s balance.
In addition, the ICR is not something that’s set in stone. It can change from time to time, depending on the terms of the fund’s product disclosure statement. For example, in a year when a fund might significantly outperform expectations, the ICR may rise to account for performance bonuses.
The ICR is different to other super fees like investment fees or administration fees in that it is not static. It doesn’t just vary based on your choice of fund, but also the type of investment strategy you opt for and how successful.
There’s room for each fund to manage what is included or excluded as part of the ICR slightly differently, but they’re usually summarised into an annual rate for readability. For example, 0.04 per cent per annum.
Should the ICR affect your choice in super?
Beyond the balance of risk and rewards involved, Stockspot’s most recent FatCat report found that fees are the next most important factor when choosing a superannuation fund.
“You can’t control how markets perform, but you can control how much you pay for the management of your hard-earned money,” the report said.
“The smaller that fee, the more money left over for you. Our research shows that lower-cost super funds tend to outperform higher-cost alternatives across all categories.”
According to them, “There is a clear correlation between high fees and long-term underperformance in superannuation.”
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