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Super diagnosis over-egged, but prescription has merit

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The Productivity Commission's report on superannuation scoffs at the industry claim that Australia's retirement-income system is among the world's best. And its evidence of administrative costs and poor investment performance for many Australians is damning, suggesting we do in fact have a remarkably expensive system.

There is also much merit in its prescription to resolve the serious problems identified, but the commission might have garnered wider support if its diagnosis was more carefully presented.


It might have acknowledged, for example, that our system potentially offers considerable advantages over most other countries' systems. It involves far lower government costs, both now and into the future; its defined contributions funding ensures much greater intergenerational equity; the emerging benefit levels will be comparable to those of most national defined-benefit super schemes; and it allows much more flexibility and choice for members.

The commission is also highly critical of the system's continuing link to the industrial-relations system. While there is good reason to re-assess these links as the superannuation system matures, the commission might have been more diplomatic, acknowledging the strengths of those historic ties. These include, in particular, ensuring that the mandated contributions are properly paid for, in effect by employees as part of their remuneration as each increase in employer contributions is taken into account in wage agreements. Moreover, the involvement of unions has provided some protection of members' interests – the lack of which, in much of the system, the commission rightly highlights as a major concern. Employer involvement in super funds as trustees also avoids the sorts of conflicts of interest that the commission identifies as common elsewhere in the industry.

Its key finding is that fund performance varies significantly but that members are not sufficiently well-informed to select the fund likely to best meet their interests. This is exacerbated by variations in administrative expenses, excessive fees, and excessive and duplicative insurance premiums. The effect on members' final retirement benefits can be extremely high, in some cases halving the real value of those available from well-performing funds.

The drivers of these problems are the excessive number of funds, the multiplicity of accounts that a large proportion of people have, the lack of relevant information for members and the understandable reluctance of most people – especially the young – to devote time and effort to examining funds and products (particularly given most........

© Canberra Times