The introduction of a tender process to select low-fee default superannuation funds for new workers would help reduce high super fees for individuals, according to a report published today by the Grattan Institute.
The Grattan Institute’s report Super Sting: How to stop Australians paying too much for superannuation, reveals Australian workers are paying around $10 billion, or 50%, more than what they should be in superannuation fees.
Based on the current fee levels, the average worker’s retirement savings will be docked 20% over their working life.
The institute wants the government to make it easier for individuals to swap superannuation funds by directing taxpayers to an ATO-hosted platform that compares their funds’ fees with the default fund when they submit their annual tax returns.
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Once on the platform, individuals would be able to click a single button to switch their super to the default fund.
The proposal would likely boost the number of people opting to change super funds, creating additional paperwork for small business owners.
However, the Grattan Institute’s productivity growth program director and author of the report, Jim Minifie, told SmartCompany the institute does not expect the proposals would have a disruptive impact on small business.
“We’ve designed the system to be as painless as possible,” said Minifie, who said the proposals are designed to operate within the ATO’s existing infrastructure.
While Minifie said it is “conceivable” that the process could affect small business owners in the short term if large numbers of workers opted to change super funds, he expects the number of people swapping funds would decrease over time.
Minifie said the institute’s proposals are designed to “preserve the current superannuation arrangements as much as possible”, with a focus to remain on choice between providers. He also said the Grattan Institute is not recommending the introduction of a government-run default fund.
Instead, the proposals are aimed at placing “intense price pressure” on super funds which would be competing in a tender process every two or three years to be selected as one of the default funds for new workers entering the workplace.
Minifie said around 70% of Australian workers have super in default funds, which are currently selected by employers or stipulated in awards. However, many of these workers are disengaged and not aware of the high level of fees that are taken out of their retirement savings each year.
The introduction of a tender process for default super funds is modelled on the experience of other countries such as Chile, which introduced a similar system in 2010. Since that time, super fees for new workers have dropped by 65%.
According to the institute, the level of super fees paid by Australians has remained relatively unchanged over the past decade, despite an almost tripling of the size of the country’s superannuation system, which should have resulted in lower fees.