The Government’s draft super Bill will make retirees better off
Submitted to the Senate Economics Legislation Committee Inquiry into the Treasury Laws Amendment Bill, Monday 23 July
In this submission Grattan CEO John Daley and Australian Perspectives Fellow Brendan Coates argue that Government’s draft Protecting Our Super Bill will substantially reduce the costs of superannuation, resulting in higher superannuation balances at retirement for many Australians.
If passed, the Bill will stop super funds from defaulting many Australians into insurance they don’t need. Life insurance will no longer be a default for super fund members aged under 25, for members with balances under $6,000, and for members whose accounts have not received a contribution in 13 months and are inactive. Life insurance is unlikely to be appropriate for most under 25s, who generally don’t have dependents. Only 6 per cent of people aged 23-24 and in employment have a child. If a 23 year old dies, it is unlikely that any partner would depend on income support from them for the rest of their lives.
The super industry argues that the proposed changes to default insurance would lead to large increases in insurance premiums. This strongly suggests that those who are young, have inactive accounts, or small balances, are cross-subsidising everyone else.
The Bill will also automatically consolidate inactive accounts. And it may increase competition between superannuation providers a little, lowering superannuation fees.
But even then, Australia will still have some of the highest superannuation fees of any system in the OECD. Much more still needs to be done to reduce the excessive costs of superannuation, which currently exceed $30 billion a year (excluding insurance premiums), almost 2 per cent of Australia’s GDP.