Australians Should Be Paying $10 Billion Per Year Less in Super Fees: Grattan Institute
Tuesday 29 April 2014 @ 10.05 a.m. | Trade & Commerce
The Grattan Institute has released a report that claims that Australians are paying superannuation fees and expenses that are up to three times higher than what they should be. The report, Super Sting: How to stop Australians paying too much for superannuation, suggests that the total amount Australians pay in fees should be reduced by at least half, which would lead to savings of at least $10 billion every year. According to the Grattan Institute’s calculations:
"a 50-year old Australian today will have his or her super balance reduced by almost $80,000 in fees (in today’s dollars) at retirement. A 30-year old will lose more than $250,000."
The report comes as the Federal Government is continuing the rollout of the 'Stronger Super' reforms, which make major changes to the management of superannuation funds. From January this year, employers have required to make contributions for employees who do not nominate a super fund to a fund within the Government’s new MySuper product range. From July 2017, existing default investments must be transferred to a MySuper product.
However, the Grattan Institute says that the savings from these reforms will only be 'modest', and that "they do not sufficiently shift the nature of competition in the superannuation market." The report concludes:
"Costs are too high in Australia because the system assumes that account holders will make choices that will generate pressure for lower fees. Yet this approach has not worked for decades, nor has it worked overseas. Superannuation is inherently opaque, and few people can make or care to make an informed choice."
An Australian Tax Office survey found that 69 per cent of people did not choose their own fund when they joined their most recent employer, and only two per cent switched funds in 2013 for reasons other than switching jobs or their employer switching default funds.
The Grattan Institute is calling for lessons to be taken from other countries overseas, where fees can be much lower. On average, Australians pay fees of 1.2 per cent on their superannuation account balances, which is more than three times the median OECD rate.
Grattan Institute Productivity Growth Program Director Jim Minifie says this is "the largest single opportunity for micro-economic reform in the Australian economy and it is long overdue". The Grattan Institute recommends two key reforms to address the high fees - the creation of a new low-price default fund for new job starters and using the tax return process to allow taxpayers to match their fund against the new fund and for them to be able to switch on the spot.
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