Productivity Commission Identifies Structural Flaws in Super Sector

Superannuation members could benefit by an estimated A$3.8bn if two main structural problems were fixed, says the Productivity Commission in a new report.

Structural flaws in Australia’s superannuation system are harming millions of members, according to a new report from the Productivity Commission.

According to the report, super members could benefit by an estimated AUD 3.8 billion (USD 2.74 billion) if two main structural problems were fixed.

The first relates to “a significant number” of super products that underperform, which is exacerbated by excessive and unwarranted fees. Over 13 years to 2017, 42 funds performed below their own benchmark, of which 29 underperformed by more than 0.25 percentage points.

> ALSO READ: ASIC Consults on Fee, Cost Disclosures at Super, Managed Funds (10 January 2019)

The other relates to unintended multiple accounts, which erode members’ balances by an estimated AUD 2.6 billion a year in unnecessary fees and insurance. About one third of super accounts (about 10 million) are unintended multiple accounts, the report says.

The Productivity Commission attributes the poor outcomes in the super sector to inadequate competition, governance and regulation.

“Regulations (and regulators) focus too much on the interests of funds and not members. Subpar data and disclosure inhibit accountability to members and government,” the report says.

It makes 31 recommendations to improve member outcomes, including an annual assessment for APRA regulated funds as a quality control mechanism. Products that fall short of benchmark portfolios by more than 0.5 percentage points a year averaged over eight years should be given one year to improve, or be withdrawn from the market.

The Productivity Commission also proposes to make it easier for members to choose their own products. “The superannuation system offers products that meet most members’ needs, but members lack simple and salient information and impartial advice to help them find the best products,” it says.

APRA (the Australian Prudential Regulation Authority) issued a statement welcoming the report from the Productivity Commission, hailing it as an “important step towards delivering better outcomes for members”.

“APRA is committed to enhancing the focus of Australia’s superannuation sector on delivering optimum member outcomes,” said the regulator’s deputy chair Helen Rowell, adding that progress has been made to address many of the areas identified as needing improvement.

The final report on the superannuation sector from the banking royal commission is due by 1 February.

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