The Government must act to prevent excessive fees taking at least $40,000 from the superannuation accounts of millions of Australians at retirement.
Too many account holders pay too much in both administration and investment management fees, and that the system could be run for significantly less than the $21 billion Australians pay each year in fees and expenses.
The report recommends that government reduce fees by running a tender to select superannuation funds to manage the accounts of more than nine million Australians who choose a default fund through their employer.
Running a tender to select these funds would save $1 billion a year in fees, or $40,000 for each account holder.
The Murray Financial System Inquiry came to a similar view in its 2014 report, recommending a “competitive mechanism”, or tender, to select default funds, unless a review shows that the sector has become much more efficient by 2020.
Recent government moves to reduce administration costs and make default accounts more transparent are welcome. But the government should go further and close excess accounts, merge funds and encourage people to move out of overpriced superannuation products. There are too many accounts, too many funds, and too many of them incur high costs.
Australia has many high-performing, lean funds. If other funds charged what they charge, account holders could get the same performance, but pay $4 billion a year less in administration and $2 billion less in investment management.
These are numbers big enough to make the difference between sausages and steak in retirement. A stronger and fairer superannuation system will take the pressure off government pension payments and give older Australians confidence in the future.