Fees and commissions on super funds are costing Australian workers more than $14 billion each year - around half the cost of paying the old age pension, a new study has found.
And excessive fees are costing Australians up to a quarter of their retirement savings, the report by The Australia Institute says.
The report, which will be submitted to the Cooper review on superannuation industry, calls for the Federal Government to create a universal default fund that would charge no more than 1% in annual fees.
This could give some workers an extra $100,000 on retirement, research fellow David Ingles says.
The current average administrative charge for Australian super funds - 1.35% - reduces final super fund balances by up to 27%, the study says. This is over $130,000 for a worker on the average wage.
In comparison, the average administrative cost for retail superannuation funds, at 2%, slashes $300,000 from the average fund member's retirement payout.
"It's not as though a difference of a half or one per cent doesn't count. It's enormously important," Ingles says.
The study also says legislation should require super funds that want to charge fees higher than 1% to get written permission from members before charging them.
The proposed fund would protect the 6-16% of employees who are not covered by an industry default super fund. But it should also be available to other workers who want to take advantage of the low charges, Ingles says.
"It would backstop the system. Current legislation allows anyone to choose their preferred super fund but most people go with the default offered by their employer, which often has higher fees."
"The creation of this fund would apply a low cost passive management instead of a high cost active management of fund choices."
It would also address the problem of ‘lost' and multiple super accounts, Ingles says. "These are eroding the savings of millions of Australians."
"Commercial super funds profit enormously from fees on inactive super accounts... and the current policy doesn't do anything to stop this."
"There has never been a proper debate in this country about the issue of superannuation fees and how to minimise them. This paper is designed to help open up that debate," Ingles says.
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