The Productivity Commission has recently delivered to the federal government its final report into the superannuation industry. It is highly critical of many aspects of how the industry runs and identifies many areas of overcharging and under-performing.
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Some of the main issues raised in the report are:
- Australia’s super system needs to adapt to better meet the needs of a modern workforce and a growing pool of retirees. Structural flaws — unintended multiple accounts and entrenched under-performers — are harming millions of members, and regressively so. Fixing these twin problems could benefit members to the tune of $3.8 billion each year. Even a 55 year-old today could gain $79, 000 by retirement. A new job entrant today would have $533, 000 more when they retire in 2064.
- While some funds consistently achieve high net returns, a significant number of products underperform, even after adjusting for differences in investment strategy. Under-performers span both default and choice, and most (but not all) affected members are in retail funds.
- Evidence abounds of excessive and unwarranted fees in the super system. Reported fees have trended down but a tail of high-fee products remains entrenched, mostly in retail funds.
- A third of accounts (about 10 million) are unintended multiple accounts. These erode members’ balances by $2.6 billion a year in unnecessary fees and insurance.
- Not all members get value out of insurance in super. Many see their retirement balances eroded — often by over $50 000 — by duplicate or unsuitable (even ‘zombie’) policies.
- The default segment (industry funds) outperforms the system on average, but the way members are allocated to default products has meant many (at least 1.6 million member accounts) have ended up in an under-performing product, eroding nearly half their balance by retirement.
- Regulations (and regulators) focus too much on the interests of funds and not members. Sub-par data and disclosure inhibit accountability to members and government
Obviously these findings indicate that many fund members have super fund balances that are significantly lower than they should be.
One bright spot is that most fund members, whether in the accumulation phase or drawing down a pension, can change their super fund to a better performer. You could probably save yourself a lot of money by doing some research and finding out if you are in a good or poor performing fund. Also, if you have more than one super account, you are probably paying twice as much in administration costs as you should be.
You can also get some useful information on saving for your retirement from our book titled “A Holistic Guide to a Happy Retirement”. It’s available on our web site at –www.retirementbooks.com.au