The Productivity Commission handed its report on Superannuation to the Government at the end of December, and the rest of us got to see on 10 January. If the report recommendations are followed, Australia’s superannuation sector is looking at some big changes – and big wins for super investors.
After reviewing how super works and the parameters for assessing the performance of the super system, the Superannuation Inquiry report concludes that the whole shebang is filled with structural flaws and poor performance.
Duplicated accounts and underperforming products that are entrenched within funds are “harming millions of members”. Just fixing those two problems could bring $3.8 billion of benefits a year to super members. New entrants to the job market in 2019 could have an extra $533000 in their payouts on retirement, and even a 55 year old now could have a further $79,000 in their funds by the time they’re ready to retire.
The report also calls out excessive and unwarranted super fees, unnecessary or unsuitable insurance that erodes balances, and lack of competition, governance and regulation.
Fortunately, the Commission has made some recommendations to protect the interests of members which, if adopted, could deliver those healthy returns mentioned before.
The first is to have an independent panel create a “best in show” list of superannuation products for members to choose from. This list would remove underperforming funds from the running and produce a win for members.
Trustee boards would also be required to “steadfastly appoint skilled board members, better manage unavoidable conflicts of interest, and promote member outcomes without fear or favour”.
Regulation gets a to-do list as well, with the Commission stating regulators need to have clearer roles, powers and accountability to ensure trustee conduct is adequately monitored and laws enforced appropriately when transgressions occur.
Most of the recommendations aren’t precisely new – they build on the ones made when the interim report was released in 2018, so the government hasn’t been taken by surprise with the final report.
Australian Treasurer Josh Frydenberg has been reported as saying that though the report notes the superannuation system is “performing reasonably well, there are significant issues that need to be addressed” and the ideas for reform have merit.
However, Mr Frydenberg notes in an ABC report that “The Government will await the final report of the banking royal commission, which is examining the conduct of super funds and the regulators, before finalising its response to the Productivity Commission report into superannuation.”,
If and how (and how many) of the recommendations are applied will depend on many things, including whether political bipartisanship can be achieved. Shadow Treasurer Chris Bowen has already said that a “best in show” list is problematic; a stance that the Association of Superannuation Funds of Australia (ASFA) agrees might reduce competition.
Given the sums the report says could result from a shake-up of the system, a review and changes sound like solid, good sense.
While we’re waiting for the government to decide what it will do, it might, in any case, be a good time to review your own superannuation to consolidate any multiple funds, and check that any insurance is appropriate to your needs and budget.
If you would like to speak with a professional investment adviser about how your portfolio is positioned for the year ahead, contact United Global Capital today on 03 8657 7640 or email firstname.lastname@example.org for a no cost, no obligation consultation.
Photo: Financial Review