The Productivity Commission report recommending more than 30 superannuation reforms has got tongues wagging.
While promising a $3.8 billion boost to super balances every year, and valuing the reforms at $533,000 for new workers over their entire working life, some of the proposals divided opinion.
As with any substantial reform there was always going to be some debate, but what did those in the know make of it?
Bank-owned super reaction
Industry body the Financial Services Council (FSC) (which represents bank-owned retail superannuation funds) welcomed the recommendations.
“The chief tenet to this report which I think is critical is to eliminate all of these unwanted, so-called ‘lost’ super funds,” FSC CEO Sally Loane told Trading Day.
Such funds exist when workers sign up for their employer’s default fund when they start a new job, often leaving a trail of accounts behind them.
“I cannot believe that there are 10 million funds out there that belong to people that they even don’t know about. That’s extraordinary – there are only about 11 million working Australians,” Loane explained.
Considering 80 per cent of Australians choose the default funds instead of selecting their own, perhaps that number isn’t so surprising.
The report recommended that to counter this, the 80 per cent Australians only be allowed to open one default account in their lifetime, meaning that they are then forced to carry that account throughout their working lives.
“This would really go to the heart of eliminating some of the biggest inefficiencies in the system,” Loane said.
However, the FSC wasn’t won over by all the changes.
The proposal to create a ‘best in show’ list of the top-performing funds to guide Australians for example has been particularly controversial, with Loane warning it could produce “unintended consequences”.
“Think about the industry. It has almost $3 trillion under management so if you’re going to… behaviourally herd people into ten funds, what’s that going to do to the overall economy?” she asked.
That concern combined with the measure’s potential to kill off small funds looking to shake-up the industry and the difficulty in measuring top-performance over the long term, will need to be addressed, according to Loane.
Watch the full interview below:
Consumer advocate reaction
As Australian politicians kept reiterating on Thursday, our superannuation system should always have members’ best interests at heart.
So what does the consumer advocate think?
The Superannuation Consumer Centre disagrees with the FSC, believing the ‘best in show’ list was a “simple and easy” fix to the tranche of bad funds.
“For the first time consumers will know who those [best performing] funds are and [not] be left to wade through almost 40,000 investment options from 200 different funds,” head of advocacy Xavier O’Halloran told Trading Day.
“That would leave anyone scratching their heads as to which fund they should be in,” he said.
Another major reform is the increased scrutiny and weeding out of the many underperforming super funds currently in operation, which O’Halloran welcomed.
“The approach has to be two-fold… giving more power to the regulator so they can really identify those funds that have chronically underperformed and putting the pressure on them to do better, merge or get out of the market,” he said.
Watch the full interview below:
Tech innovator reaction
It’s no surprise that investment platform Stockspot kept a close eye on the report, given each year they name and shame the funds that did and didn’t deliver for members.
One of the key issues that the report identified is that superannuation can be needlessly (and perhaps deliberately) complex.
“I hired two analysts to analyse all the data for two months, and these people had finance and economics degrees and even they couldn’t work out all the information on these funds’ performance,” CEO Chris Brycki told Your Money Live.
The recommendation to collate all this information in one place would help Australians select a fund but there is a catch.
“One of the drawbacks to having all that information is that consumers will still be confused… consumers don’t understand that paying an extra 2 or 2.5 per cent more in fees could mean that 75 per cent of all their money over their lifetime in super actually ends up in the financial industry,” he explained.
Like Loane however, Brycki has reservations around how a list of the top 10 funds is compiled.
“A lot of top ten funds also become bottom ten funds over time if they don’t have low fees because they just got lucky by investing a bit in an asset class that did well,” Brycki explained.
Equally, such a list removes any incentive for a top ten fund to perform as they will automatically attract members, Brycki argues.
“I think the policy does really well at getting people out of the very worst funds… but what it doesn’t do is ensure that the top funds do better than they are now,” he said.
In the meantime, for people who are confused over which super fund they should be with, Brycki advises them to keep it simple by finding a fund that charges fees of 0.75 per cent or less, and ensuring they have the right asset allocation for their age.
“There’s a few rules of thumb you can use but generally when you’re younger and in your 20s or 30s you need more growth assets and when you’re older you need more bonds and cash.”
Watch the full interview below.