Indirect Cost Ratio (ICR) in Super — What It Is and Why It Matters

The Indirect Cost Ratio (ICR) is a fee component in superannuation that reduces your investment returns but does not appear as a direct charge to your account. It is one of the least understood fee types — and one of the most important for comparing funds accurately.

What Is the ICR?

The ICR represents the costs embedded within the fund’s investment returns — fees paid to underlying investment managers, custodians, and operational service providers that are netted off returns before they are applied to your account.

When a super fund invests in:

• Unlisted infrastructure assets
• Private equity funds
• External managed investment trusts
• Overseas sub-managers

…those underlying managers charge their own fees. These fees reduce the gross return before the net return is passed to your account. They are not deducted from your balance as a separate line item — they simply make the return smaller.

In short: If the fund’s investment option earns 9% gross, but 0.15% is consumed by underlying manager fees, you receive 8.85% net. The 0.15% is the ICR.

Why Does ICR Matter?

Because the ICR is not deducted as an obvious account fee, it can be overlooked when comparing funds. Two funds with the same headline administration fee and investment fee can have very different total costs if one has a high ICR.

Example:

Fund B appears the same but costs 0.21% more per year. On a $200,000 balance, that’s $420/year — or ~$28,000 over 30 years (assuming compounding).

Where to Find the ICR

The ICR must be disclosed in the fund’s Product Disclosure Statement (PDS) in the “Fees and Costs” section. It should also appear on the MySuper product dashboard and the APRA heatmap under total fees.

Look for it labelled as:

• “Indirect cost ratio”
• “Indirect costs”
• “Other costs” (older PDS documents)

It is expressed as a percentage per annum of your investment in the option.

What Is a Normal ICR?

Higher ICRs in options with significant unlisted assets (infrastructure, private equity) may be justifiable if those assets contribute to higher net returns. The question is always whether the ICR is offset by performance.

ICR vs Performance Fees

Performance fees are sometimes included within the ICR (disclosed as part of it) and sometimes separately disclosed. Check the PDS carefully to understand whether the ICR you are comparing includes performance fees or not.

Since 2017, RG 97 (ASIC’s fee disclosure guide) has standardised how ICR and performance fees are disclosed — but comparison still requires care.

Total Cost = Administration + Investment Fee + ICR + Performance Fees

For a complete cost comparison, always add all four components:

Total fee % = Admin fee % + Investment fee % + ICR % + Performance fee %

The APRA heatmap and YourSuper tool attempt to aggregate these into a comparable total — but always verify against the PDS if precision matters.

Frequently Asked Questions

Is the ICR charged in addition to the investment fee? Yes — the ICR is a separate component on top of the investment fee. The investment fee covers the cost of managing the option at the top level (including the fund’s in-house investment team). The ICR covers the costs of underlying managers and service providers used within the option. Both need to be added to get the true cost of the investment.

Why does the ICR vary so much between options within the same fund? Different options use different mixes of asset managers and asset types. An index option may use a single low-cost passive tracker with near-zero underlying costs, giving an ICR of 0.00%–0.05%. An alternatives option may use five or six specialist external managers (infrastructure, private equity, hedge strategies), each charging their own fees — resulting in an ICR of 0.30%–0.60% or more.

If I switch to a lower-ICR option, will I get the same return? Not necessarily. Lower-ICR options (such as indexed options) may earn lower gross returns, though many studies show they often match or exceed higher-cost active options on a net basis. The question is whether the additional gross return from higher-cost options is enough to offset the higher ICR. Always compare net returns (after all fees including ICR) over 5–10 years, not gross returns.

Does the ICR change from year to year? Yes — the ICR is an estimate based on recent costs, and it varies from year to year. If the fund’s underlying managers raise their fees or new managers are added, the ICR increases. The PDS discloses an estimated ICR; the actual figure for the year is calculated after the fact. Check the latest PDS annually for any changes.

Is the ICR the same as “other costs” in older PDS documents? In older PDS documents (pre-2017), the ICR equivalent was sometimes labelled “other costs” or “indirect expenses.” Since ASIC’s RG 97 standardised fee disclosure in 2017, funds are required to use the term “indirect cost ratio” or equivalent. If reviewing an older PDS, check whether “other costs” covers the same ground as the ICR.

Are SMSFs exposed to ICR? Yes — if your SMSF invests in managed funds, ETFs, or unlisted assets, those underlying investments have management costs embedded in their returns. These function the same as ICR in a retail or industry fund. For SMSFs invested entirely in direct shares or bank deposits, there is no ICR equivalent.

For more: How Are Super Fees Calculated?, Total Cost Ratio, Performance Fees in Super, How to Read Your Super PDS, APRA Heatmap Guide. For advice on your situation, speak with a licensed financial adviser via MoneySmart.