Poorly performing and high-cost superannuation funds are ripping about $3.8 billion a year from the retirement savings of Australian workers and retirees.
A Productivity Commission report, delivered to Federal Parliament today, found unwanted insurance, high fees and massive underperformance are slicing more than $500,000 off the potential lifetime savings of the average Australian worker.
To fix the problem, the Productivity Commission wants the Government to stop employers sending workers into a new fund whenever they start a new job and for courts to jail fund trustees who do favours for corporate mates instead of looking after members.
The Productivity Commission is also sticking by a contentious proposal unveiled last year for a panel of top bureaucrats and Federal appointees to select a list of up to 10 “best in show” funds that should be the default choice for new employees.
The sweeping proposals are the culmination of three years work by the Productivity Commission on the sector, which manages more than $2 trillion belonging to Australian workers.
Industry reluctance to kill off the 10 million “unintended” duplicate super accounts, created when workers shift jobs and are signed into a new fund, rips $2.8 billion a year in fees and unwanted insurance payments from the system alone, the Productivity Commission claims.
Although part of the problem is members, mainly the young who do not pay close attention to their super accounts, the sector’s refusal to clearly disclose fees and fund performance is also a major problem.
The commission’s landmark report has found the worst offenders are the profit-driven retail superannuation funds that have come under harsh scrutiny in the banking royal commission.
Just two weeks before Kenneth Hayne is due to present his final report from the financial services royal commission, the Productivity Commission has called for a shake-up in how Australian workers are pushed into super funds.
It found these profit-driven funds averaged annual returns about one-quarter less than not-for-profit corporate and industry super funds.
The funds, run by the likes of the big four banks and AMP, generated weaker annual returns across the major asset classes of shares, property, infrastructure and bonds.
The commission found retail funds had averaged returns of 5.12 per cent between 2005 and 2017, while corporate and industry funds averaged returns of about 7.1 per cent.
Even after factoring in the higher fees charged by for-profit funds, slammed by the commission for being too high, they still failed to beat industry funds for return to members.
The report attributed the shortfall to “asset selection” differences, alongside conflict of interests in big finance companies — code for highly paid fund managers tipping member money into dud stocks spruiked by the company’s broking arm.
The commission report says the potential lifetime super savings of Australian workers could enjoy a $168,000 boost if the Federal Government adopted its recommendation to create a list of high-quality default super funds.