Billions of reasons to fix our superannuation system

Members’ interests ought to be the pre-eminent concern of superannuation funds. But a landmark report by the leading independent policy adviser to the federal government, the Productivity Commission, shows this fundamental duty is being subordinated amid conflicts of interest, structural shortcomings in the system and parasitic investment managers benefiting personally by steering people into inappropriate products.

The failings are collectively costing millions of Australians billions of dollars a year in poor returns and undue fees. The Productivity Commission found the average worker could be more than $400,000 better off by the time they retire if workers were given an option of one of the top 10 performing funds, rather than being defaulted into an underperforming fund of their employer’s choice. The problem includes industry, retail and corporate funds.

Illustration by John Shakespeare

The Productivity Commission’s interim report from a review ordered by the government two years ago shows the system, nearly three decades old, needs an overhaul. It has accumulated $2.6trillion (an indication of the heft of that number: the entire Australia economy produces about $1.6 trillion of goods and services annually). Australia, with less than one-third of 1 per cent of the world’s population, has the fourth-biggest pool of retirement savings. It is a massively attractive and lucrative industry for financial firms.

There are two profound problems. First, many money managers are not managing the money well; almost a third of default superannuation accounts consistently underperform. Second, superannuation accounts are generated whenever someone starts a job, which leads to people having multiple accounts and paying multiple, duplicate fees for insurance and investment management.

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