‘Twin flaws’ in Australia’s super system harming millions, Productivity Commission says
The Productivity Commission has released a draft report detailing how “two fundamental flaws” within Australia’s $2.6 trillion superannuation industry are costing members billions every year.
Deputy Chair of the Productivity Commission Karen Chester tells Ross Greenwood millions of Australians are having their retirement savings eroded by duplicate accounts and underperforming funds.
“Those odds are working against members and, more importantly, they’re causing great harm to young members, workers on low incomes and workers in and out of the workforce.
“These are two awkward truths that really need to be addressed.”
The Commission’s draft report has revealed one in three member accounts are duplicates and it’s costing ordinary Australians $2.6 billion every year in the form of fees and insurance premiums.
“Getting rid of unintended multiple accounts will immediately put an extra $50,000 into the retirement balance of a typical worker today,” Ms Chester says.
The Commission’s Deputy Chair says the default system needs to be reformed to ensure “members only default once”, with that account then following the individual if they switch employer.
It’s expected such a change would see new workers $400,000 better off by the time they retire.
But that isn’t the only reform that’s required, with Ms Chester saying “we need to mop up the tail of consistent underperformers”.
The Productivity Commission has recommended funds compete for the default market every four years, with an expert panel compiling a “best in show list” that’s based on members’ best interests.
“It’ll make member engagement easier… but it also makes comparing fund performance across the system, at last, a possibility.”
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With the glaring issues now identified, Ms Chester says it’s time for the government to act.
“It is incumbent upon government, and the regulators, to make sure the system is safe and simple.
“These twin flaws that we’ve identified, unintended multiple accounts and persistently underperforming funds, need to be addressed by a change in government policy.”
The Productivity Commission’s final report is expected to be handed down later in the year.