Super system ‘could be retired’
THE current superannuation system could itself be retired after a critical report today condemning it as outdated and harming the saving efforts of young workers.
"Bamboozled" savers are paying for accounts they didn't intend to have, and for "zombie" insurance policies that do little more than soak up savings.
One concern is that our money is not always producing the retirement savings we deserve, says the detailed findings released today by the independent Productivity Commission.
The commission recommends a panel of experts select top performing funds to guide savers - a "best in show" range of options.
"Australia's $2.6 trillion super system has become an unlucky lottery for many Australian workers and their families," said commission deputy chair Karen Chester on release of the draft report Superannuation: Assessing Efficiency and Competitiveness.
"The system is working well for many members, but not for all."
And she said: "We have had compulsory super for nearly 30 years, but its architecture is outdated."
Ms Chester said there were two structural flaws in the system - unintended multiple accounts, and entrenched underperformance.
A problem highlighted by the Productivity Commission is the fact many superannuation accounts are tied to the employer and not the employee - the person for whom they are meant to be helping.
That can mean that many savers have to open a new account every time they change employers.
"A third of accounts - about 10 million - are unintended multiples," said Ms Chester.
"The excess fees and insurance premiums paid by members on those accounts amount to $2.6 billion every year." Said Ms Chester.
And the most likely victims are the young, who can often change jobs many times, and lower-income workers.
The other structural flaw the commission notes is the performance of funds.
The report says "deliver good investment returns", but millions of members are in funds - over one in four - that persistently underperform.
The commission report says over an average fund member's working life, being stuck in a poor-performing default fund can leave them with almost 40 per cent less to spend in retirement.
"Fixing these twin problems of entrenched underperformance and multiple accounts would lift retirement balances for members across the board," said Ms Chester.
"Even for a 55-year-old today, the difference could be up to $60,000 by the time they retire. And for today's new workforce entrant, they stand to be $400,000 ahead when they retire in 2064," said commissioner Angela MacRae.
"The Commission has proposed a package of changes - focused on delivering for all members - to modernise the system and deliver the best possible returns and products."
Savers should get access to a "best in show" list of top performing funds and be able to chose one they believe would be best for them.
The funds would be chosen by an independent panel of experts, and fund members should be able to switch from default funds if they want to move to a more profitable scheme.
And, the commission said, we should have a clearer idea what we are signing up for.
"All members should be able to engage with their super without being bamboozled," said commissioner MacRae.
"Members today face a confusing proliferation of products, some 40,000 options, and information they don't understand. It's hardly surprising that many end up in a bad product."
"Super needs to be simpler and safer for all Australians."
Part of the problem is that products are most complex during accumulation and most simple in retirement, but that the reverse was preferable.
One problem was the provision of insurance in super accounts. Often it simply isn't value for money and isn't invoked.
The commission says some savers end up with cover that is manifestly unsuitable, including "zombie" insurance policies they can't even claim on.
And many unknowingly have duplicate insurance policies, which can erode their super balances at retirement by over $50,000.