Budget’s superannuation reforms will fix a broken system

The changes announced to our superannuation system in the 2020 budget are timely.

Getting a better deal for workers is exactly what I have been calling for since I entered parliament more than a year ago.

I am often misquoted as wanting to wreck super. I don’t. I think super is a good idea but needs fixing after 30 years.

Treasurer Josh Frydenberg’s 2020 federal budget goes a long way to achieving that.

Australia’s $3 trillion superannuation system is the fourth-largest in the world and is responsible for managing the retirement savings of 16 million Australians.

This is the measure the industry is proud of because it refers to how much money they have to charge huge fees upon.

The reality is that super hasn’t saved the budget money, helped many Australians become self-sufficient or increased national savings. It has delivered for insiders, not workers.

Structural flaws within the system mean many Australians have been let down.

Right now, households pay $30bn per year in super fees, excluding insurance premiums. This is more than the $27bn Australian households pay on their energy bills or the $12bn they spend on water bills.

By 2034, it’s estimated that Australians could be paying $45bn in super fees. We should be aiming to halve that number.

Frydenberg has taken a huge leap in the right direction with his “Your Future, Your Super” package.

The four key elements are a masterstroke in how to channel more of the honey pot back to you instead of wasting it on propaganda ads and payments to unions and banks.

First, your super money will now follow you. It has always been a flaw that your retirement savings have been eaten away by duplicate fees and insurance premiums on multiple unintended accounts.

The government will now ensure that a new super account isn’t automatically created every time you start a new job. Instead, your super will follow you, so that your new employer will pay your super contributions into your existing account.

This will stop the creation of millions of unintended multiple accounts and boost balances in super by around $2.8bn over the next decade.

Second, the newly created YourSuper comparison tool is designed to empower members.

It’s quite simply an interactive online service to help you choose a high-performing and/or low-cost superannuation product that suits your needs.

It will make the performance of MySuper products more transparent and clear, which means funds will need to compete harder for your savings.

Third, from now on we will hold underperforming funds to account. It has never sat well with me that under our compulsory super system it’s been difficult to find out if your fund has been underperforming.

You will now be protected from poor super outcomes because products will have to meet an annual performance test. If your fund fails the test it will tell you and refer you to the new YourSuper comparison tool that can help you select a better performing fund. Persistent underperformers will be prevented from taking on new members.

This test will ensure funds are focused on improving the investment returns they’re delivering and lowering the fees they’re charging.

The fourth pillar of the package is something I advocated in my recent book, Bad Egg: How To Fix Super — increasing transparency and governance standards.

For most Australians super will be their largest asset in retirement besides the family home. I have long argued that super funds should be held to the highest standards of accountability and transparency in how they spend your retirement savings.

The government will increase trustee accountability by strengthening their obligations to ensure super fund actions are only undertaken in your financial interests.

The existing “sole purpose test” is a joke which the funds have been driving trucks through for 30 years.

The super regulator, APRA, has been asleep at the wheel on governance. These new laws will wake them up.

The issues are not new.

Weak governance is resulting in lower retirement balances for millions of members. Funds are wasting money on donations, inflated related party payments, online newspapers and endless, pointless advertising.

The financial services royal commission identified many of these inefficiencies in its report. It recommended a number of changes to further strengthen protection for members and improve regulatory oversight.

These recommendations have been accepted by the government and are being implemented.

The labour movement and banks may not like it because they’ll have less money to spend on themselves. I make no apology for that. It’s your money.

Andrew Bragg is a Liberal senator for NSW