Australian superannuation account holders would collectively save $3.9 billion every year if the recommendations of the final report of the Productivity Commission’s review of the $2.7 trillion industry are endorsed, according to consumer advocate CHOICE.
The Productivity Commission argues that people in their mid-50s stood to gain up to $79,000 in retirement as a result of the proposed changes. And consumers will be able to compare superannuation funds and investment products more easily.
Recommendations include that:
- the Government legislate to extend MySuper regulations limiting exit and switching fees to cost recovery levels to all new members and new accumulation and retirement products
- the Government require superannuation funds to clearly inform, on an annual basis, all members who are subject to trailing financial adviser commissions
- the Australian Securities and Investments Commission (ASIC) review exit and switching fees faced by existing members, with a focus on whether these fees are related to the underlying performance of the product, and whether they unreasonably impede members moving to products that better meet their needs.
The Productivity Commission’s proposed system is likely to drive under-performers out of the market, according to analysts, with millions of Australians potentially moved into stronger funds. It estimates that jumping ship from the bottom 25 per cent of funds would deliver an average gain of $188,000 to someone entering retirement.
The Age reports that the commission clearly wants whichever party wins this year’s election to go even further and is seeking an independent inquiry into the total retirement incomes system.
“This would canvass the role of superannuation, the Age Pension, how they interact with each other, their impact on federal finances and the impact of the current $450-a-month threshold for the superannuation guarantee.”
The commission wants the inquiry to be completed before the next planned increase in the super guarantee – from 9.5 to 10 per cent in mid-2021.
CHOICE says that Australians will be hundreds of thousands of dollars worse off in retirement if the Federal Government does not act now to stop the superannuation sector eroding savings.
CHOICE chief executive Alan Kirkland says: “Today’s report is a clarion call for political parties of all persuasions to fix this outdated system. It’s outrageous that in 2019 up to $3.9 billion is being leeched out of people’s retirement savings every year.
“Even more worrying is that industry continues to lobby against sensible consumer protections, such as the Protecting Your Super Package currently before Parliament, which would address these problems. We need the Federal Government and all political parties to back reform that will leave Australians with more money in retirement.”
Superannuation Consumers’ Centre (SCC) head of advocacy Xavier O’Halloran says the Productivity Commission plan, for the first time, placed consumers at the centre of the superannuation system.
“The Federal Government needs to adopt these recommendations and make it easier for consumers to maintain a single, high quality fund,” he says. “Past reforms have tinkered around the edges. This approach will finally deal with the multiple account problem and dramatically improve retirement savings.
“The Royal Commission shone a light on what superannuation trustees were up to alone in the dark with our money and it wasn’t pretty. This report turns the light on the entire system and is the most complete map of its failures, as well as the path to how it should be fixed.”
There are a total of 24 million superannuation accounts, held by about 15 million people as of June 2016. About 40 per cent of these people had multiple accounts. Over half of all accounts were either inactive of had balances of $6000 or less. About 25 per cent of all accounts were inactive. Inactive accounts without a contribution for 13 months or longer, will be returned to existing accounts, reuniting around four million people with lost superannuation.
ASIC has endorsed the recommendations. It also wants to remove superannuation trustees’ ability to treat costs as indirect costs rather than administration or investment fees.
Are you confident the recommendations will have an impact on your super saving and the transparency of fees?