Summing the problem up is Peter Harris, Chairman of the Productivity Commission: "It's like when you go into a New York delicatessen and there are nine kinds of ham, six kinds of mustard and five kinds of bread, a thousand people in the queue behind you and you just want a ham sandwich."
Superannuation assets in aggregate were $2,199 billion ($2.2 trillion rounded) at the end of the December 2016 quarter, up from the previous quarter which were $2,145 billion, and are now at an all time historical record level. Over the 12 months to December 2016, there was a 7.4 per cent increase in total superannuation assets. Collectively, Australians have over $2 trillion of assets in superannuation funds, comprising about 20 per cent of total household assets.
More than 40% of all employees have multiple superannuation accounts
There are currently more than 100 default superannuation funds – the commission wants to knock that back to five.
The Productivity Commission is an organ of Government and undertook a review of the efficiency and competitiveness of the superannuation. The Commission was also asked to develop alternative models for a “formal competitive process for allocating default fund members to products is now underway.”
The review estimated that every time a worker moves jobs (for generation x and y that can be as many as 17 times during their working life compared with just 2-3 movements for baby boomers) the confusion surrounding where their money is can often be lost in translation. Some workers will end up having multiple accounts
The Productivity Commission has called for an overhaul of default accounts – the Australian Taxation Office has defined a default fund for employers as: “Before you offer your employee the option to choose a super fund, you must have a fund you will pay their super into if they can't or don't choose their own fund. The super fund you nominate must: be a complying fund (that is, one that meets specific requirements and obligations under super law) - be registered by the Australian Prudential Regulation Authority (APRA) to offer a MySuper product – the problem is of course, not all employers comply.
Member fees - General administration fees to cover the cost of keeping your super account.
Management or investment management fees (also known as MER) - Fees for managing your investment which can vary for different investment options.
Contribution fees - Fees to cover the administration expense of receiving and investing your contributions.
Adviser service fees - Fees for personal advice provided about your super and other investments. Your adviser may also receive commissions for certain investments that they recommend to you.
Insurance premiums - The cost of insurance provided through your super fund. Many super funds have a set default insurance option. You can usually choose to lower or increase your level of cover based on your needs.
Example of what the impact of fees can be on a superannuation account holder if they change funds and get access to lower fees (Australian Investments and Securities Commission):
Gerri is 30 and earns $50,000 per year as a librarian. She already has $20,000 in her super. After shopping around for another super fund, she changed to one with only 1% management costs. Her old super fund charged 2.5% (including adviser fees). By changing to a super fund with lower fees, Gerri will have $81,000 more in her super when she retires at age 65. Her super account balance will be $336,000 instead of $255,000.
Where to from here? The report will now be in the hands of Treasurer Scott Morrison and any changes will be up to him - will they happen? It makes sense but you might expect some backlash from the 95 default funds that don't get a look in. If anything its a case of buyer beware - coming up next week - can you afford to retire?
About the author: Matthew Tukaki is the Host of Talking Lifestyle: Second Career across the 2UE Radio Network. Matthew is Chairman of the global entrepreneurs movement, the EntreHub and Chairman of the global news distribution business, NewsNow. Matthew is formerly the head of one of the oldest and largest recruitment companies in the world, Drake, and is Chairman of Australia’s National Coalition for Suicide Prevention.
See more from the show: https://www.talkinglifestyle.com.au/Show/second-career/
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