Super overhaul could see you $25,000 better off at retirement

New report suggests ways to address proliferation of multiple super accounts.

man putting golden eggs into one nest

A draft report released yesterday by the Productivity Commission (PC) outlines four methods for preventing the accumulation of multiple superannuation accounts by workers as they change jobs.

The proposals suggest that many Australians would benefit from a share of $150 million worth of unnecessary fees on duplicate accounts. And having fewer funds would also help workers keep track of their retirement nest eggs.

The Productivity Commission found that account proliferation was “one of the superannuation system’s worst systemic failings and warrants more than the incremental remediation to date”. In 2014, the Financial System Inquiry (FSI) said addressing the issue could increase superannuation balances at retirement by around $25,000 (based on assumptions of 37 years of work with an average of 2.5 accounts over a person’s working life).

Some of the recommendations include cutting the number of potential default MySuper schemes (the current default super system that provides low-cost and simple super products for employers to choose as their default super fund) from more than 100 to just five and allowing a system of tenders and fee-based auctions for default super. The report also proposes that employees should only ever receive one default superannuation account when they first join the workforce.

Consumer advocacy group CHOICE welcomed the proposals, with CEO Alan Kirkland suggesting they go a long way to addressing a fundamental flaw in Australia’s superannuation system.

“The existing system sees many Australians defaulted into a new super fund every time they start a new job,” Mr Kirkland said.

“For young people, many of whom are part-time and working multiple jobs as part of the ‘gig economy’, multiple accounts are having a devastating impact on retirement savings.

“Trying to fix this by getting people to consolidate their super accounts hasn’t worked. We need to stop the problem happening in the first place.”

However Industry Super Australia was scathing about the proposals, suggesting they focused on the wrong area and were more likely to send workers from high-quality workplace defaults, towards underperforming retail funds.

Industry Super Australia CEO David Whitely said the proposed changes could undermine the best performing parts of Australia’s super system.

“The PC’s proposals will shift the balance from a system that safeguards consumers with high quality workplace defaults to one focused more on employee choice, which better suits the profit-driven, bank-owned retail funds,” Mr Whitely said.

“The Productivity Commission approach focuses heavily on the first super fund a person joins – this will place banks in the box seat when a young person opens their first bank account and they cross-sell a super fund at the same time.”

The review into default superannuation was ordered last year by Treasurer Scott Morrison, after criticism of the overall system from David Murray, the former Commonwealth Bank chief executive who chaired the FSI.

Listen to Productivity Commission chairman Peter Harris discussing the proposed changes on ABC’s AM program.

You can read the full Productivity Commission report here

Opinion: Action needed to address inefficiencies

There is little question that too many Australians have multiple superannuation funds. People moving into different jobs creates a massive pool of workers with multiple funds which can make it difficult for them to keep track of their different accounts.

We already know that the Australian Tax Office (ATO) is sitting on nearly $12 billion in lost and unclaimed super accounts –­ and that says nothing about the number of people who are losing money through excess fees and charges from keeping multiple accounts open.

The Productivity Commission’s proposal to lock an employee into one default super account (unless they make an active choice to change accounts) goes most of the way towards solving the problems created by having multiple accounts.

However, the other changes suggested by the Productivity Commission – limiting the number of default funds and products available – seem less convincing.

The current MySuper default arrangement is not under attack for placing employees in poorly performing funds, so there is little to suggest that locking employees into one default fund will reduce that fund’s performance.

Limiting the choice of default superannuation products requires either the government or the employer to shortlist from the current providers and this could be problematic.

It seems the current Government has ideological problems with the better performing industry super funds and may even favour retail funds, which deliver lower returns. The Government having the power to select members of a governing body to oversee which funds were worthy of making the shortlist requires a pretty big leap of faith and doesn’t seem necessary given that the current system isn’t broken. 

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    COMMENTS

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    Eddy
    30th Mar 2017
    11:15am
    Seems like a reasonable proposal if you wanted to shut out not-for-profit industry funds. I would go further that there would be only one default fund, a low cost but not necessarily high performing fund, maybe something like Comsuper would fit the bill: (FYI Comsuper is the fund which manages Commonwealth employees and politicians superannuation). Choosing an alternative fund would be by a active choice by an employee. I can understand employers wanting to limit the number of funds with which they have to deal.
    Another point, payments into super funds should be made at the same time as pay is doled out, super contributions are part of the remuneration package and should be paid in at the same time. No more of this waiting months before depositing in the super fund, this alone must be costing employees large amounts over a working lifetime. This time lag is no more interest free loans to the employers.
    Further exit fees should be regulated (say no more than $30 or 1% of total funds transferred, whichever is the lesser) to makem changing funds easier and less costly.
    Old Geezer
    30th Mar 2017
    9:54pm
    I would like to see a system where a person could go to a bank and open a fee free super bank account. When that bank account gets to a certain level they could then look at investing it better but until then the meagre super would not be eaten up by fees and insurance premiums.
    TREBOR
    3rd Apr 2017
    1:57am
    You can't expect to have a tax-free super fund, OG - fee free is one thing - tax is another.

    As things currently stand, the entire superannuation system needs an overhaul.
    floss
    30th Mar 2017
    11:58am
    Hands off our super Mr Turnbull and that goes for the always greed banks.
    older&wiser
    30th Mar 2017
    12:13pm
    Agree
    Rosret
    30th Mar 2017
    1:45pm
    Agreed.
    Old Geezer
    30th Mar 2017
    9:39pm
    What have banks got to do with your super?
    TREBOR
    3rd Apr 2017
    1:58am
    All the banks run super funds..... end of discussion... if they make issues out of nothing from their greed - that is a serious issue.
    KSS
    30th Mar 2017
    12:29pm
    I see merit in limiting the number of default superfunds. Perhaps this could be to the industry fund that covers that sector e.g. Hostec for the entertainment and hospitality/tourism sectors, REST for retail sector, Hesta for health sector etc etc. I would suggest that most people would stay within the same sector even if their employer changes so the default fund would remain. As it is now, it is not sector that decides your default fund but the employer. Making it an opt out system would ensure those default industry funds retain members since people pay so little attention.

    However, I also think that real problem is most people are just plain lazy and can't be bothered taking responsibility for their super. Happy to outsource the responsibility until the day comes when they finally look at a statement and realise their super is non-existent then want to blame everyone else.
    Captain
    30th Mar 2017
    3:20pm
    KSS, I agree that people need to take some responsibility for their super and their own lives.

    We appear to continually cater to the lower common denominator.
    Rosret
    30th Mar 2017
    5:23pm
    KSS is everyone was stock market savvy then the world be a different place. However we aren't and we shouldn't have to be. That's why we pay the experts to do it for us.
    If I get someone to build a house for me I expect a soundly constructed home in return. I expect the same with my superannuation.
    TREBOR
    3rd Apr 2017
    1:59am
    Name those people who are 'just plain lazy', KSS..... diaphanous statements rendering no fact are meaningless.....
    Rae
    30th Mar 2017
    12:37pm
    I was shocked during a recent discussion with friends. All are now employed on a casual basis, full time. Although they get no sick leave, etc they get casual rates per hour and superannuation.

    They also have life and income protection insurance automatically included. Problem is that casuals can't claim income benefits if they don't get shifts so this is another situation where lack of information and opt out is costing people money for nothing.
    Rosret
    30th Mar 2017
    1:43pm
    Our place of employment actually split our super into different private funds. Most liked it because it doubled their death and injury insurance payout.
    Remember fees are allocated as a percentage of the amount deposited so having multiple private super funds made no difference to the fees and charges.
    It also gave us an opportunity to compare funds and if one was doing badly inevitably the other was a bit cheerier.
    Guessing which one to merge with would be like picking the best queue at the bank.
    I think we need the freedom of choice.
    The most difficult aspect of employers depositing the money on behalf of the employee is their failure to do so.
    Bankruptcy and small business operating cost can mean the employee does not receive a penny.
    If you think that is illegal - just see how much it costs when you try and take them to court and then how do you get money from a bankrupt company!
    It comes down to our class system where those who have believe those who don't can't manage their own money.
    older&wiser
    30th Mar 2017
    3:10pm
    Emphasis on the one important word..."COULD"
    Old Geezer
    30th Mar 2017
    9:50pm
    I recently had to consolidate super for a young fellow from one industry fund to another one. They put up every obstacle they could to stop him and it had dragged on for about six months with them creaming a lot of fees. In the end I had to say to them that I'll give you 7 days to transfer it or I'm going to lodge a complaint with the ombudsman. It was transferred in 2 days.

    I can see why people would not consolidate their super after what I had to do with that case as it would be simply too hard and most would not know that their was a big stick they could try. It was very frustrating and time consuming. The really funny part was they sent one of those surveys and I filled it out for the fellow and gave them the lowest score possible. They then rang to find out why.

    Having dealt with many super funds for others I personally would not have super unless it was in a SMSF that I controlled myself. If the day comes when I feel that I can't manage it myself I will just withdraw the lot instead of handing it onto a managed super fund.

    Those insurance premiums are more or less useless to anyone with a casual job.
    Rae
    31st Mar 2017
    9:55am
    All casual workers should check they are not paying out money for income protection insurance if the policy disallows casuals from claiming disability payments.

    It is easy to cancel the insurance by a phone cal and filling in a form to opt out.

    This would boost final payouts.

    Apparently banks are collecting billions for these payments that won't ever pay out no matter how badly hurt you are.
    Not a Bludger
    31st Mar 2017
    4:54pm
    You can bet your boots that if the union boss controlled Industry Super crowd don't like it (and they obviously don't), then it is a very good idea indeed - and should be promptly implemented.
    TREBOR
    3rd Apr 2017
    1:55am
    Told yez all before - a one stop shop for all super, and governed by the same rules for all and with limits on how much you can put away without it being considered savings and treated as such, and removed from the grasping hands of 'business' and of politicians.

    Nothing else will resolve the current divisions and rorts that some can apply while others get nothing.