Aussies may be losing up to $400K in retirement savings
A MASSIVE shake-up of the super industry is on the cards after a landmark Productivity Commission report found the near-three decades old system was riddled with useless products and fees, and could be robbing an average Aussie of $400,000.
NSW
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A MASSIVE shake-up of the super industry is on the cards with the Turnbull government not ruling out major changes after a landmark Productivity Commission report found the near-three decades old system was riddled with useless products and fees, and could be robbing an average Aussie of $400,000.
Describing the findings - released today - that the industry was ripping $2.6 billion in retirement savings from workers every year through unnecessary charges and life insurance policies as scandalous, Revenue Minister Kelly O’Dwyer said the government would “certainly look very favourably at the recommendations made by the Productivity Commission”.
“It has blown the whistle for millions of Australians on the fact that superannuation funds have not always been acting in the best interest of their members, they have often acted in their own vested interests, they have charged very high fees and charges,” Ms O’Dwyer told the ABC.
“I think it is a massive rip off, I think, in particular, young people have been ripped off, I think low income earners particularly have been ripped off and it must stop.”
The report found workers have hit the “unlucky lottery” in a superannuation system which could cost them up to $400,000 in retirement savings by the time they are ready to retire.
The Productivity Commission has found super is riddled with useless duplicate accounts and unnecessary fees that cost workers dearly.
In a major report to be released today the commission says more than $3.9 billion could be returned by giving taxpayers just one super account and making a series of smaller changes.
On top of the $30 billion in fees paid every year to fund managers, the analysis found a huge variation in what workers get for their money.
The top performing funds will leave you with retirement savings of $1.2 million off a $50,000 starting salary at 21, compared to just $568,000 for the worst performing.
Productivity Commission deputy chairwoman Karen Chester said the compulsory super system was “outdated” after being in place for nearly three decades.
“With default funds being tied to the employer and not the employee, many members end up with another account every time they change job,” she said.
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That means a third all super accounts — around 10 million — are “unintended” multiples, with the additional fees and insurance premiums paid by workers on these accounts hitting $2.6 billion every year.
Those fees — including $1.9 billion in excess insurance premiums — mean super accounts are drained and “over time, the foregone returns compound and unnecessarily erode members’ retirement balances”, the report reads.
“These problems are highly regressive … they harm young and lower-income Australians the most,” Ms Chester said.
The Productivity Commission estimates that between starting work on a $50,000 salary at 21 and retirement, the current system is stripping workers of $407,000 on average. Even for a 55-year old today, they will have on average $61,000 less when they retire because of the loopholes.
Australians have $2.6 trillion in retirement savings in the super system.
Revenue Minister Kelly O’Dwyer is expected to respond to the Productivity Commission today. But the Turnbull government earlier this month banned exit frees on super accounts to let people move their money more easily, and those under 25 will no longer be given expensive life insurance unless they want it.