Productivity Commission Inquiry Report

On 10 January 2019, the Productivity Commission Inquiry Report: ‘Superannuation; Assessing Efficiency & Competitiveness’ was publicly released after being handed to Government on 21 December 2018.

Key points from the Commission’s Report include:

  • Australia’s superannuation system needs to improve its adaptation to the modern workforce and the growing number of retirees. Structural flaws are resulting in: a) unintended multiple accounts; and b) entrenched under-performance
  • The above ‘harmful’ outcomes are the result of inadequate a) competition; b) governance; and c) regulation.
  • While Policy initiatives have made progress at ‘chipping’ away at some of the problems, ‘architectural change’ is now required
  • Implementation needs to commence now, to protect ‘member interests’ rather than the interests of superannuation funds.

The Inquiry found, that while under-performance spanned both default and choice funds, the majority of under-performance had been identified in the retail sector, as opposed to industry funds.

Concerns noted include:

  • excessive and unwarranted entrenched fees remaining despite trending down;
  • cost savings from realised scale have not been handed down to members as lower fees or higher returns;
  • very few mergers have been implemented following the introduction of the ‘Scale Test’;
  • 93 APRA Regulated funds (half the RSE Licensees) still have assets less than $1 billion;
  • a third of all accounts (approx 10 million) are unintended multiple accounts;
  • members still lack access to ‘simple and salient information, ‘ including impartial advice;
  • unhealthy competition in the choice sector, has led to the proliferation of products;
  • Regulators have focused too much on the interests of superannuation funds as opposed to the interests of their members.

Recommendations include:

  • members should be only defaulted once, and moved to a new fund only when they choose;
  • members should be allowed to choose their fund from a ‘best in show’ or ‘Top Ten’ shortlist set by an independent committee/panel;
  • all MySuper and Choice products must earn their right to remain in the superannuation system, under an elevated ‘Outcomes Test’ to improve safety for members;
  • all trustee boards must steadfastly appoint skilled board members, better manage conflicts of interests and promote member interests without fear or favour;
  • regulators require clearer: a) roles; b) accountability; and c) powers to confidently monitor trustee conduct and enforce the law.

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