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Pity the poor fools fleeced by big banks’ super funds rip-off

The latest Productivity Commission report should at last put an end to any claims by the big four banks and AMP that the appalling performance of their superannuation funds can be justified.

Depending on which way you look at it, the retail funds set up to make a profit for their promoters generate returns 1.5 to 2 percentage points lower than corporate and industry funds.

Given about $600 billion of retirement savings are invested in retail funds, this annual underperformance represents an opportunity cost upwards of $9 billion a year.

That money lost is private retirement savings crucial to the long-term sustainability of our age pension system.

The Productivity Commission report confirms a detailed analysis of superannuation fund returns carried out by The West Australian last year showing retail funds provided lousy return for risk.

Lousy returns are a far bigger and clearer problem than a young person having multiple funds with multiple life insurance policies.

The Productivity Commission says in its latest report that insurance policies across multiple accounts cost our super $1.9 billion a year.

Such criticisms need to be seen against evidence that Australians are underinsured for death and disability.

Yet the Federal Government chose in the Budget in May last year to take away automatic life insurance cover for most people aged under 25 signing on to super funds and to cease cover on low-balance accounts that have not been active for 13 months.

This came after recommendations in the Productivity Commission’s draft report in April last year.

Enforced closure of someone’s supposedly unneeded super account can leave them without life insurance.

Having multiple income protection policies is a waste but most insurance in super is good value.

The same cannot be said for super funds charging excessive fees and providing poor returns across asset classes.

Such funds should be exposed by regulators and forced out of this taxpayer-subsidised racket if they don’t improve.

Just how that is done will keep the pundits and lobbyists arguing for months.

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