Super overhaul could save consumers $3.9b per year

Review set to drive out under-performers, make fees more transparent.

super savings

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?

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    COMMENTS

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    10th Jan 2019
    10:28am
    Good proposals by this government.
    Industry and retail funds fees are currently far from transparent
    Actual from capital gains dividends and franking credits are also not explicitly provided to members .
    Not to mention the amount of member fees funneled out to unions .
    Glad I’m in a retail fund. Up 5% already for the first 6 months of the year
    TREBOR
    10th Jan 2019
    11:13am
    Apart from your usual jibe at unions - considering that retail fees take much more - your comments are pretty good.

    Up 5% - from the reports over the financial fiasco it would need to be.
    Curious
    10th Jan 2019
    12:29pm
    Lothario, good comments on capital gains, dividends and franking credits. We want transparency in accountability. These have to be investigated and revealed over the last twenty years, as the sum of capital gains, dividends, and franking credits would have amounted to billions of dollars. We want our entitlements and money back! It shows our nest eggs are not safe all these years.
    Sundays
    10th Jan 2019
    1:51pm
    I agree Curious. What happened to the money. Returns, even when good don’t explain it

    10th Jan 2019
    11:00am
    It is hoped that these recommendations by the Productivity Commission will be above politics and will be implemented as soon as possible with the support of all political parties. As I have mentioned before, very little has been changed to Keating's original legislation apart from changing the rules to increase the share a government can get. As regards the number of super funds that a person can accumulate, this is in part caused by both employers and unions who insist that an employee has super paid into a particular fund that suits the employer or the EBA for that business. I had a period in my working life where I was with a labour hire company and finished up with 4 super funds, each of which wanted to sell me life insurance. The default position with life insurance was that it was taken out unless the member opted out rather than opt in. It's the members money and the member should be allowed to insist that the payments are made where they wish.
    TREBOR
    10th Jan 2019
    11:14am
    Ah yes - the old Productivity Suspicion trick, eh? Show me the fine print...
    GeorgeM
    10th Jan 2019
    12:57pm
    Yes, looks like another side benefit of the Royal Commission as "...Xavier O’Halloran says the Productivity Commission plan, for the first time, placed consumers at the centre of the superannuation system." Wow!

    They are even "..seeking an independent inquiry into the total retirement incomes system..". What's come over them? Note that they recommend it to be done by 2021! That's close to the NEXT ELECTION!

    Why can't they do it NOW? They could design an Universal Pension system in one month! Then, all they have to do is simply implement the other Super fees crackdown as proposed by the Productivity Commission - maybe in the next month or two? Too hard for the moronic bureaucrats and shifty politicians? Thought so! Vote them (all 3 Major parties) all OUT!
    Anonymous
    15th Jan 2019
    2:01pm
    Oh come now, GeorgeM. There would be way too much opposition to a universal pension from the ignorant and selfish who are doing okay now on the public purse and couldn't stand to think that someone THEY THINK has more than them might get a benefit. You saw Misty's response to the suggestion. Sadly, she speaks for most who, like her, don't have to worry about a means test depriving them or their offspring. No care for fairness and no comprehension of economic or social benefit. Can't think past 'I am entitled because I have little' and 'take from people who have more - ASSUMING they must have gotten it by unfair means and therefore it's fair to take it away'.

    It's not just too hard for moronic bureaucrats. It would be impossible for shifty politicians to sell. They don't have the brains to explain the benefits in language the likes of Misty would understand.
    Karl Marx
    10th Jan 2019
    11:27am
    Government should adopt all recommendations. Not only will retirees have more wealth but the government will also win with less retirees accessing the OAP through the assets test.
    Not to mention the amount of members fees funneled out to the rich CEO's & their lap dogs.
    Glad I'm in an industry fund. Up 6.5% already for the first 6 months of the year.
    Anonymous
    10th Jan 2019
    12:03pm
    All industry funds are down 15-20%
    You shouldn’t tell porkies
    Karl Marx
    10th Jan 2019
    12:07pm
    You're telling Porkies old boy. Industry funds I look at aren't down at all, retail funds are down. Check the latest list on income & super fund performance & industry outperforms your retail funds EVERY time
    Anonymous
    10th Jan 2019
    12:08pm
    Ignoramus
    Karl Marx
    10th Jan 2019
    12:09pm
    Bullshit artist
    Anonymous
    10th Jan 2019
    12:11pm
    Leftie trehugging loonie
    Rae
    10th Jan 2019
    1:27pm
    Now now. Work out the final sums using the average wage and then the median wage. Don't forget inflation and you can see the promises of this money is a bit like those old whole of life funds that paid out on average 15% to 25% of promised returns after decades.
    MICK
    10th Jan 2019
    8:10pm
    Good and factual post from what I can see.
    Ignore government stoolie Lothario. All his posts are recommendations for the current crooks in government. Lies.
    ex PS
    15th Jan 2019
    10:04am
    ALL Industry Funds down 15%-20%. Please take note of this statement before making the mistake of taking Super advice from this person. He is obviously a Right wing stooge who will say and do anything to try and prop up his failing idols.
    Anyone who would make such a foolish and dishonest statement is not to be trusted.
    My Industry fund has returned about 1.5% less so far this year, it will probably lift by the end of the financial year but even if it doesn't, it is still outperforming the retail funds most of my friends are in. the reduction in earnings is my fault not the schemes as i chose the investment mix I wanted. None of the money goes to Unions and the fees are far less than most retail funds, so pull your head out of that dark warm but smelly place it is obviously stuck and join the real world.
    When and if the top performing funds are listed in relation to default schemes I will be surprised if the majority are not Industry Funds. The proof of the pudding is in the eating.

    10th Jan 2019
    11:31am
    If the government really wanted to improve superannuation it would change the flat tax provision that returns massive benefit to high income earners and virtually nothing to low income earners and make the tax 15% below the member's marginal rate, as has been repeated recommended. It would make the tax system much fairer, yield billions in annual savings by not subsidizing the wealthy to build their retirement nest egg, and give battlers are far better chance of accruing a decent super balance for retirement. It's just common sense, but politicians just continue to overindulge the wealthy, bash battlers, and complain about the consequences. And Labor is going to do exactly the same - leaving high income earners and the wealthy to lap up big franking credit refunds if they can manipulate to appear to have little or no income (or if their money is in super) and depriving battlers who saved of their livelihood and lower income earners of the opportunity to take advantage of one of the most accessible and profitable investment opportunities available. And this is the party that purports to look after 'average Australians'. God help us all!
    Rae
    10th Jan 2019
    1:30pm
    Yes Rainey. Nobody on average wages will have enough super to live on after 45 years. Let alone those on median or less. All this was okay back when Keating suggested it and using his idea to maximise compounding but we are far removed from that now and have falling incomes in real terms and little hope of that changing while immigration and privatisation consequences unfold.
    MICK
    10th Jan 2019
    8:14pm
    A better approach would be to have a test which balanced tax deductability against income.
    The advantage high income earners have is they lower their tax by maxing out their superannuation contributions. They then get a the same subsidised tax rates on fund earnings and then collect the loot tax free on retirement. That is how you own the game.
    Adrianus
    12th Jan 2019
    9:29am
    Or another option MICK would be to have a flat tax rate. I realise equality doesn't extend that far, but why not?
    Anonymous
    15th Jan 2019
    1:53pm
    Flat tax is NOT equality, Adrianus. 20% of a poor man's income is 20% of his children's food and shelter. 20% of a rich man's is one less luxury car or yacht. Nothing could be more unfair.
    BrianP
    10th Jan 2019
    11:44am
    We lost nearly all our super due to rip offs by super funds and bad advice by the accountant who set up our disastrous SMSF.

    Nothing has been done to compensate people like us who have just retired without hardly any money to live on.
    shirboy
    10th Jan 2019
    1:26pm
    BrianP get in touch with Slater & Gordon re class action "Get your super back".
    MICK
    10th Jan 2019
    8:15pm
    Welcome to how big business works Brian. Sorry to hear about your plight.
    I never trust any advisers of any sort and always do my own homework and/or get a second opinion.
    inextratime
    10th Jan 2019
    12:54pm
    Politicians think we are all stupid. Chris Bowen for example is against having a list of the top ten performing super funds because he says that a fund that is in the top ten today may not be in the top ten in five years time. Well in that case we switch our savings to one that is !!
    Pretty dumb statement Chris and you are the opposition finance minister !!
    Anonymous
    10th Jan 2019
    1:02pm
    God help us if labor get in
    Karl Marx
    10th Jan 2019
    1:08pm
    There is no God
    MICK
    10th Jan 2019
    8:17pm
    Not really a bad idea inextratime but you have to hope they do not promote their Retail Funds buddies.
    I'd say that they should show 5 years worth of returns. That would keep them honest...to use a colloquialism.
    ex PS
    15th Jan 2019
    10:07am
    Agree Mick, anyone can fudge the figures to improve the profits for one year but they can't average good performance over five.
    They will of course promote their buddies, too much campaign money at stake.
    Rae
    10th Jan 2019
    1:24pm
    The figures are fudged.
    On the median wage even with 6% a year returns after costs the worker won't have enough to live on ever. Pretending they'll have a half a million more is just cruel.
    Putting aside $6000 a year for 45 years will make a nice pot but with inflation running at 2% to 3% it's not going to help any but the top 20% of income earners.

    Maths is 100% accurate on this and I can't see where the Commission got there figures from. Even using the average wage of $80 000 still won't get you an extra half a million.

    Questioning where capital gains and franking credits have gone is good. I'd like to know how my fund got 3% returns for most of the 1980s. A sheer miracle not or some sort of sort perhaps.

    Probably best not to find out after the events. We have all been taken to the cleaners by forced savings and privateers.

    Save and invest for yourself outside of superannuation and you have far less risk of being robbed.
    MICK
    10th Jan 2019
    8:18pm
    And that is the reality Rae. Workers now have a large shortfall and tweaking the superannuation system is not going to change that at all. Its a political exercise by a government about to be thrown out to con the mentally challenged. Some will buy it!
    Adrianus
    11th Jan 2019
    8:06am
    Are you assuming the average wage remains at its current level?
    Rae
    11th Jan 2019
    8:49am
    No Adrianus I assume wages rise and prices rise and the worker gets further behind and in debt as has been happening for decades now.

    Wage rises have been below inflation for the past three decade. What would change it? Nothing I can see.
    Adrianus
    11th Jan 2019
    1:28pm
    Yes wage rises may have been tracking with CPI but workers are earning much more. Look at incomes not Union success in wage demands.
    Rae
    13th Jan 2019
    8:44am
    I hope you are right Adrianus. Now that continuing to use debt is a problem it will only be incomes feeding business. Let's see how that pans out through 2019. If incomes have been rising as you say we shouldn't have a recession. People can continue consuming without needing to use debt and all will be rosy.
    ex PS
    15th Jan 2019
    10:18am
    At least my income usually rises every year, good old Industry Super.
    floss
    10th Jan 2019
    4:24pm
    Thank God for Industry Funds they have been good to our retirement .Early in life we tried the likes of AMP. we badly bitten by this experience.It took little time to wake up to the fact that Retail Funds are run by parasites in good suits.
    MICK
    10th Jan 2019
    8:19pm
    Exactly. Been there done that.
    Karl Marx
    10th Jan 2019
    10:23pm
    Parasites wearing suits only covers up their ugly & depraved & sometimes illegal ways to strip hard working Australians of the savings & assets
    ex PS
    15th Jan 2019
    10:10am
    Yes floss, it is a sad but often repeated story. I started with National Mutual and wasted five years before I woke up and went over to an Industry Fund, and I didn't even know of the difference at the time, I guess I just got lucky.
    MICK
    10th Jan 2019
    8:22pm
    I feel an election in the air.
    Already had the Fast Train rolled out (NSW State Government).
    Federal Government now up to its tricks. The right wing media has been hard at work trying to get their team back into office. It'll get worse before it gets better.
    Voters: STAY FOCUSED and ignore the lie and blatant propaganda. No matter who Australians vote for, including the Drover's dog, this government on life support has to go.
    Anonymous
    10th Jan 2019
    8:23pm
    Hahahha
    Ignore this labor propaganda folks
    This government has excellent plans for the future
    Pay attention to their policies and vote for growth prosperity and a fairer Australia with the coalition
    Karl Marx
    10th Jan 2019
    10:21pm
    Hahahha
    Ignore Lothario & his LNP propaganda folks
    A new non LNP government will have excellent plans for the future
    Pay attention to their policies and vote for growth prosperity and a fairer Australia, vote out the coalition.
    ex PS
    15th Jan 2019
    10:15am
    Any one could see an election in the near future, the government has started to talk about Border Force, remember that is the subject that could not be mentioned because of national security. Come election time all of sudden all the politicians will want photos of themselves on boats with men and women in black uniforms. Just wait for the massive rally's and flag waving ceremonies. Or maybe a giant face on a coach that is not used.
    Cheezil61
    10th Jan 2019
    10:15pm
    Election promises don't get me too excited! Same as power/energy prices story, wont see any of it in my pocket I'm tipping!
    Adrianus
    11th Jan 2019
    8:16am
    It appears that all those recommendations are focussed on distribution and retention costs. Apart from the taxes these are the real reasons underperformers stay in the game. We have 3 times as many super accounts as we do citizens. So I would like to see the government follow through on these changes, but also go further and reduce taxes on super particularly for low balances of say under $300,000.

    11th Jan 2019
    8:56am
    While the law allows people to profit from managing other people's money, they will find ways to manipulate to get more than their share. It's human nature, and it will never change. So let's complicate life further with a whole lot more regulations, and make the victims of the rorts feel good by highlighting them and promising to fix everything. And nothing will change except a few gullible folk will feel better and respond to some recommendation or offer in some way and sit back hopeful, waiting for the windfall that will never come.
    Adrianus
    11th Jan 2019
    10:30am
    So true Rainey. The difference between talk and actions is results.
    Old Geezer
    11th Jan 2019
    11:15am
    Problem is the hidden fees are more than the fees that are disclosed. They will just increase the hidden fees to make same amount of money.
    Adrianus
    11th Jan 2019
    1:32pm
    Correct Old Geezer! One of the hidden fees in the so called not for profit funds is the yield applied or credited to the account. It's not the same as the actual fund's earnings.

    11th Jan 2019
    10:00am
    Latest news is that labor and the unions are opposing this move
    They won’t be able to keep rorting their members under the coalition proposal
    Adrianus
    11th Jan 2019
    10:38am
    Of course they would oppose these changes. One of their biggest rorts is stitching young people (with no dependents) up with life insurance as a compulsory cost. This should be opt in. I just wish people would stop calling them "not for profit funds." When quite clearly there is profit in managing OPM.
    Karl Marx
    11th Jan 2019
    2:58pm
    Fake news as always from Lothario the rightie troll.
    Adrianus, you can opt out at anytime from the life insurance component but most young people don't care & or too lazy to even look at their super funds.
    Adrianus
    12th Jan 2019
    9:24am
    Exactly my point 1984. Why make it a legal requirement to have life insurance premiums chewing away at a young persons retirement saving so that profiteering super funds can profit? Please don't misunderstand me, I love profit, but profit from a fair trade of goods and services on a needs basis whereby both parties have a win because of that need. Not because of some ridiculous Labor law.
    ex PS
    15th Jan 2019
    10:27am
    Adrianus, are you suggesting that life insurance coverage for young people is wasteful. If you have an accident that prevents you from working for the rest of your life or even worse kills you, wold it not be nice to have your self or family taken care of.
    In my day it was pretty basic economics to be covered for your debts at that stage in your life. Things may have changed, but I would like to see the reasoning behind not having insurance that covers existing debts or inability to work.
    I thought you could opt out of insurance attached to Super, has that changed?
    I will know I have it right when you fail to make a direct reply. Omission is just as bad as lying.
    Adrianus
    16th Jan 2019
    8:26am
    "Adrianus, are you suggesting that life insurance coverage for young people is wasteful." exPS.

    You know sometimes I don't give you enough credit. In certain circumstances yes it is.
    Approximately 40% of members have multiple accounts. Each account has compulsory life insurance under a legally binding award agreement. In many cases the award, not only states clearly the level of life insurance but also the Union run super fund which should receive the contributions. If these super funds were fair dinkum, they would analyse the members circumstances and advise accordingly.
    I know the "one size fits all" methodology suits the union funds, but it is just another example of their lack of member support.
    I don't know that a member can opt out of something which is part of his award agreement. It would be similar to an employee opting out of morning tea breaks? If the employee died and it was discovered that under his award his beneficiaries should receive $200,000, but only receive the account balance of $25,000, then who is responsible for the difference?
    ex PS
    16th Jan 2019
    9:21am
    I too do not like opt out options, I much prefer that people are encouraged to make an informed choice. I can only speak from my own experience. I joined an Industry Fund over twenty years ago and can remember receiving an Application Form and a pamphlet explaining how the fund operated, how payments were made and how I could, if I wished take out an insurance component. Options included abstaining, taking a basic cover that was equal to about two years pay, or boosting the coverage to whatever level I required.
    Employer contributions are subject to Union involvement in Super Schemes but the individual is free to manage their own fund in their own way, in some cases the employee can opt out of the Union sanctioned super Fund and go their own way.
    Unfortunately the governance over how Employees handle Super Attenuation is so lax they can do almost anything they like and get away with a slap on the wrist. I have been involved in more than one case of employers failing to make thousands of dollars in payments into their employees accounts and basically getting away with it.
    But once an Employee makes a payment into a legitimate fund the payments and circumstances of that payment are out of their hands, it is between the Super Fund and the Fund holder. This means that if the Fund does not pay the full return, the Fund is held responsible.
    Adrianus
    16th Jan 2019
    10:46am
    Over the years a few people have asked me to help them get the super contributions not paid by their employer. It has taken almost 5 years for the last few payments to finally roll in. Of course the ATO want their back taxes first.
    Of course more than 20% of workers don't have any super at all, so it's not a concern for them. I just hope they've found another way to accumulate some wealth. For all our sakes.
    Adrianus
    16th Jan 2019
    3:55pm
    "But once an Employee makes a payment into a legitimate fund the payments and circumstances of that payment are out of their hands, it is between the Super Fund and the Fund holder. This means that if the Fund does not pay the full return, the Fund is held responsible." - exPS

    Apart from the administrative staff and investment fund managers the two key entities in a super fund are the trustees (possibly corporate) and the members. The trustees of course are obliged to perform their duties in accordance with the trust deed. The trust deed may not necessarily be as specific as to detail a members level of life insurance. This is particularly the case of super funds open to every tom dick and harry, which is what most of the union funds have morphed into.
    It is such a shame that these funds have not lived up to their promise.
    Hawke and Keating conveyed the concept of people retiring with wealth beyond their dreams but then applied taxes. Lets just be honest, compulsory super for about 60% of the workforce was simply a greedy money grab on a couple of levels.