Over the past 12 months there’s been a lot of focus on the country’s $2.7 trillion super industry, with first a Productivity Commission report into the sector, followed by the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, and most recently some significant legislative changes.
The Productivity Commission investigation into super efficiency and competitiveness in the sector found that overall, Australia’s super system needs to adapt to better meet the needs of a modern workforce and a growing pool of retirees who are being harmed by structural flaws in the system, particularly the high rates of unintended multiple accounts and underperforming funds.
Worryingly, the report found approximately one third of super accounts (about 10 million) are unintended multiple accounts which can erode a typical Australian worker’s balance by 6% or $51,000 by the time they reach retirement age.
The majority of these accounts are opened by default in the early stages of a person’s working life when they’re more likely to be switching between jobs or industries. Perhaps of most concern, the regressive nature of these multiple unintended accounts sees younger and lower-income members affected the most.
Another worrying trend exposed by the report is the high instance of excessive and unwarranted super fees across many funds. While reported fees have trended down, a raft of high-fee products remains entrenched in the system.
More recently, after almost a year of hearings and deliberations, the final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was released.
Of the 76 separate recommendations made by Commissioner Hayne, a number directly concerned super.
From a consumer perspective, some of the key recommendations relating to super included:
- banning the hawking of super and insurance products
- that a person should only have one super fund
- banning employer inducements (to nominate particular funds as default funds, or having employees join a particular fund)
- ensuring financial advisers who aren’t independent disclose this to clients in a prescribed format
- banning grandfathered commissions which are attached to some bank and insurance-owned super funds
- the overhaul of bosses’ pay so that incentives are more aligned to non-financial risk and
- an overhaul of the culture of the regulators.
The good news for consumers is it hasn’t just been all talk, and no action.
In early February, the Federal Parliament passed new laws which gives the Australian Tax Office greater power to consolidate inactive and low-balance accounts. It also bans exit fees and imposes a 3% fee cap on accounts with $6,000 or less.
While the Government was unsuccessful in their attempts to make life-insurance opt-in rather than opt-out for young people and low-income earners, inactive super accounts will no longer be charged life insurance fees.
As evidenced by both the Productivity Commission and the Royal Commission, there’s still a lot more to be done but it’s encouraging that real progress is being made in improving the operation of Australia’s super system.