The federal government is briefly shifting its attention from Australia’s banking systems to its superannuation providers, commencing the final stages of a review into the efficiency and competitiveness of the superannuation system.
The release of the Terms of Reference is the third and final stage of the Productivity Commission review, which has its origins in the 2014 Financial System Inquiry, and first commenced in February 2016.
According to Federal Treasurer, Scott Morrison, and Minister for Revenue and Financial Services, Kelly O’Dwyer, Australia’s superannuation sector is worth an estimated $2 trillion.
“Given the sheer size of the superannuation system, and the fact that it is compulsory, it is imperative that the system is efficient, competitive and focused on delivering the best outcomes for Australians.”
The Productivity Commission is set to complete its review within 12 months, and to provide a draft report to the government by January 2018.
There are four broad areas for the Productivity Commission to look into as part of its review:
- Costs, fees and net returns – Is too much super being eaten up in charges from fund providers?
- Default fund members – Should changes be made to help Australians who stick to their employer’s default fund?
- Insurance in superannuation – Do the insurance policies folded into many super funds offer enough value?
- The broader financial system – A separate, but related, review of competition.
An estimated 45% of Australians have multiple super funds, having gone with the default option each time they changed jobs, and now have multiple insurance policies and multiple sets of fees to manage as a result.
Separate to the Productivity Commission review, the Australian Tax Office (ATO) is improving its digital tools for managing multiple superannuation accounts, though some industry bodies are concerned that Australians will need further guidance to make informed superannuation decisions.
Furthermore, a recent report into the experience of less-engaged superannuation fund members from the Australian Securities and Investments Commission (ASIC) found some cases of poor disclosure around changes to fund members’ insurance arrangements, as well as the use of inappropriate defaults when calculating insurance premiums, such as categorising members as smokers without checking first, resulting in higher premiums being charged to non-smokers.