Superannuation report to drive industry change

Australians are currently paying around $16 billion a year in superannuation fees, equal to approximately 1% of the nation’s GDP. In 2014 this equated to about $570 in fees per person. For the average Australian, fees that are too high by even half a percentage point can eat away at superannuation balances, reducing retirement savings by over 10%.

In November 2016, the Productivity Commission, the Australian Government’s independent research and advisory body, released a report on the Australian superannuation sector with a view to remedying the issues inherent in the system. How to Assess the Competitiveness and Efficiency of the Superannuation System is the first of a three-part response to the Murray Financial System Inquiry (FSI).

One of the many cutting statements made in the FSI’s final report in November 2014 was that “the superannuation system is not operating efficiently due to a lack of strong price-based competition.” This first stage does not analyse and assess the superannuation sector, but rather details a criteria for assessing it. In mid-2017 the second stage of the response will be delivered, which will set out alternative models for making the system more competitive.

The result of the report is a number of objectives for the superannuation industry. These objectives include:

  • Competition that drives efficient outcomes through facilitating rivalry and contestability in supply and demand conditions and allowing suppliers to compete on adding value to members.
  • Maximising net returns over the long term.
  • Meeting member preferences and needs over the member’s lifetime.
  • Providing insurance that meets members needs at the lowest cost.
  • The Superannuation system complements a stable financial system.

These objectives are underpinned by the overarching policy objective set out by the Government which states that the superannuation system exists “to provide income in retirement to substitute or supplement the Age Pension.”

The Productivity Commission will be asked to undertake the second stage of this process, a system-wide review, after the implementation of the MySuper reforms have been completed (this is detailed in the table below).

Government superannuation report process graph

Source: How to Assess the Competitiveness and Efficiency of the Superannuation System – Australian Government Productivity Commission

This report and the subsequent regulatory actions will become increasingly important as Australia’s population ages. A more straightforward superannuation system with less fees will decrease the current reliance on the Age Pension system and subsequently the burden on the taxpayer.

As a fund manager, we are inherently linked to the superannuation system, and we await with interest the next stage of this process. If you would like us to provide you with an update on the second stage of this report once it becomes available, click here. To access a copy of the first stage of the report, click here.

IMPORTANT: The information on this website contains general information and does not take into account your personal objectives, financial situation or needs. We recommend that you consult a licensed Financial Adviser if you require financial advice that takes into account your personal circumstances. While every effort is made to provide accurate and complete information, Trilogy Funds Management Limited ACN 080 383 679 AFSL 261425 does not warrant or represent that the information in this newsletter is free from errors or omissions or is suitable for your intended use. Subject to any terms implied by law and which cannot be excluded, Trilogy Funds accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omissions or misrepresentation in information. Note: All figures are in Australian dollars unless otherwise indicated.