Why super doesn’t work

Wondering why your decades of saving have resulted in such a meagre retirement income stream? Wonder no more – you have been ripped off! 

This week’s Centre for Population Ageing Research (CEPAR) superannuation research talkfest saw a gathering of the sharpest minds in ageing societies and retirement funding from industry, government and academia in the UK, US, Europe, Asia and Australia. But it was Nicholas Morris (formerly Oxford University, now University of New South Wales) who really nailed the discussion on the inadequacy of the Australian superannuation system.

Mr Morris started his presentation by noting that the potential costs of ageing populations have resulted in a world-wide shift to defined contribution schemes.

Australia was considered a world leader in the field after the Keating government’s early introduction of mandatory superannuation in 1992, but Mr Morris states that Australian fund members now face risks previously borne by companies and governments (see below for YourLifeChoices related articles on the issue of risk shift).

He further claims that our legal and regulatory system needs to adapt to help these individuals manage these longevity and market risks, as well as the threat of lower returns created by the ‘rent-seeking’ behaviour of the financial services industry.

So, what are the reasons for inadequate returns? Here are the top five offenders:

  • excessive fees and charges
  • poor fund performance
  • inadequate or inappropriate regulation (including unresolved conflicts of interest, lack of transparency)
  • overly complicated, and therefore costly, industrial structure
  • conflict of duties of trustees and professional advisers


Underlying these structural weaknesses is a fundamental problem in the belief in efficiency of the markets, which leads to light-handed regulation and unquestioning acceptance of high costs.

Mr Morris has hit the nail fairly and squarely on the head. We all too rarely challenge the structure, charges or performance of our financial services industry, in particular those involved in financial planning, managed funds and superannuation funds.

We also rarely ask why our main regulator, ASIC, has failed so dismally when it comes to gaining successful prosecutions against the white collar criminals in our largest financial services organisations. This mirrors a similar lack of vigour when it comes to regulators in North America and Europe. Post GFC, only one major Wall Street banker went to jail for the global collapse.

Sadly, Australia has seen a string of scandals in the banking sector with only a handful of charges against the people involved.

So Nicholas Morris’s observations are a timely reminder of what needs to be done, and quickly, to help the next generation of retirement savers get the returns they deserve.

As we have noted before, the risk of providing retirement income has been firmly placed on the shoulders of individual workers.

Those who are employed full-time and earn a lot will be fine.

Those with low pay or fragmented work opportunities will not.

An enlightened society with a well-structured and equitable retirement savings system would help such people to maximise the returns on their (albeit) low savings/nest eggs.

Sadly, Australia’s current system encourages high fees, poor performance and a lack of governance while the regulators (APRA and ASIC) stand by, wringing their hands and calling for a change in culture.

Perhaps a hung Parliament isn’t such a bad thing. Maybe a feisty crossbench in our 45th government will provide just what we need – tighter regulation and more scrutiny to force planners and managers to really act in the best interests of their individual investors.

What do you think? Do you agree with Nicholas Morris that our superannuation system is structurally faulty? Do you feel that your savings have suffered as a result? Or do you feel that it works well?

Related articles:
Retirement: the risk is all yours
Retirement planning disconnect

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