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Inquiry report

This report was handed to the Australian Government on 21 December 2018 and publicly released on 10 January 2019.

The report assesses the efficiency and competitiveness of Australia’s superannuation system and whether better ways to allocate defaults are needed.

Download the overview

Download the report

There has not been a government response to this inquiry yet.

Superannuation members survey

The Commission engaged Roy Morgan Research to conduct a survey to better understand members’ experiences with the superannuation system.

Key results from the survey are presented throughout the report. A description of the survey methodology (including the Commission’s approach to weighting) is presented in Appendix C.

  • Key points
  • Contents summary
  • Technical supplements
  • Australia’s super system needs to adapt to better meet the needs of a modern workforce and a growing pool of retirees. Structural flaws — unintended multiple accounts and entrenched underperformers — are harming millions of members, and regressively so.
    • Fixing these twin problems could benefit members to the tune of $3.8 billion each year. Even a 55 year old today could gain $79 000 by retirement. A new job entrant today would have $533 000 more when they retire in 2064.
  • Our unique assessment of the super system reveals mixed performance.
    • While some funds consistently achieve high net returns, a significant number of products underperform, even after adjusting for differences in investment strategy. Underperformers span both default and choice, and most (but not all) affected members are in retail funds.
    • Evidence abounds of excessive and unwarranted fees in the super system. Reported fees have trended down but a tail of high‑fee products remains entrenched, mostly in retail funds.
    • Compelling cost savings from realised scale have not been systematically passed on to members as lower fees or higher returns. Much scale remains elusive with too few mergers.
    • A third of accounts (about 10 million) are unintended multiple accounts. These erode members’ balances by $2.6 billion a year in unnecessary fees and insurance.
    • The system offers products that meet most members’ needs, but members lack simple and salient information and impartial advice to help them find the best products.
    • Not all members get value out of insurance in super. Many see their retirement balances eroded — often by over $50 000 — by duplicate or unsuitable (even ‘zombie’) policies.
  • Inadequate competition, governance and regulation have led to these outcomes.
    • Rivalry between funds in the default segment is superficial, and there are signs of unhealthy competition in the choice segment (including product proliferation). Many funds lack scale, with 93 APRA‑regulated funds — half the total — having assets under $1 billion.
    • The default segment outperforms the system on average, but the way members are allocated to default products has meant many (at least 1.6 million member accounts) have ended up in an underperforming product, eroding nearly half their balance by retirement.
    • Regulations (and regulators) focus too much on the interests of funds and not members. Subpar data and disclosure inhibit accountability to members and government.
  • Policy initiatives have chipped away at some problems, but architectural change is needed.
    • Default should be the system exemplar. Members should only be defaulted once, and move to a new fund only when they choose. Members should also be empowered to choose their own super product from a ‘best in show’ shortlist, set by a competitive and independent process. This will bring benefits above and beyond simply removing underperformers.
    • All MySuper and choice products should have to earn the ‘right to remain’ in the system under elevated outcomes tests. Weeding out persistent underperformers will make choosing a product safer for members.
    • All trustee boards need to steadfastly appoint skilled board members, better manage unavoidable conflicts of interest, and promote member outcomes without fear or favour.
    • Regulators need clearer roles, accountability and powers to confidently monitor trustee conduct and enforce the law when it is transgressed. A strong member voice is also needed.
  • Implementation can start now, carefully phased to protect member (not fund) interests.
  • Preliminaries: Cover, Copyright and publication detail, Letter of transmittal, Terms of reference: stage 3, Terms of reference: stage 2, Contents, Inquiry timeline, Acknowledgments, Abbreviations, Glossary and Overview including key points
  • Findings and recommendations
  • Chapter 1 Setting the scene
    • 1.1 How does the super system work?
    • 1.2 What does this inquiry cover?
    • 1.3 How is this report organised?
  • Chapter 2 Investment performance
    • 2.1 How is the system being assessed?
    • 2.2 How has the system performed?
    • 2.3 How have option types and asset classes performed?
    • 2.4 How have differente segments performed?
    • 2.5 What is the variation in performance within the system and segments?
    • 2.6 How have SMSFs performed?
  • Chapter 3 Fees and costs
    • 3.1 How does Australia compare?
    • 3.2 How have fees changed over time in the APRA‑regulated system?
    • 3.3 How have fees varied across segments?
    • 3.4 Better disclosure needed to improve comparability across segments
    • 3.5 How do fees relate to net returns?
    • 3.6 What about SMSFs?
  • Chapter 4 Are members’ needs being met?
    • 4.1 Do members believe they are being well served?
    • 4.2 Is there product proliferation and does it matter?
    • 4.3 Are products meeting people’s needs over their working life?
    • 4.4 Variety is needed in the drawdown phase
    • 4.5 Is the product range in retirement wide enough?
    • 4.6 Innovation and quality improvement in the system
  • Chapter 5 Member engagement
    • 5.1 How engaged are superannuation members?
    • 5.2 Are active members and member intermediaries able to exert material competitive pressure?
    • 5.3 What kinds of information and advice do members need to help them make decisions?
    • 5.4 Better information is needed to help members compare products
    • 5.5 Finding affordable and impartial advice on super is challenging
    • 5.6 Creating a strong, independent member voice
  • Chapter 6 Erosion of member balances
    • 6.1 How can multiple accounts be eliminated?
    • 6.2 Are efforts to reduce unpaid super effective?
    • 6.3 Are funds efficiently managing tax?
  • Chapter 7 Market structure, contestability and behaviour
    • 7.1 Is the market structure conducive to rivalry?
    • 7.2 Is the market contestable at the retail level?
    • 7.3 Vertical integration is not serving all members well
    • 7.4 Are there unrealised economies in the system?
  • Chapter 8 Insurance
    • 8.1 A framework for assessment
    • 8.2 Some context
    • 8.3 How significant is balance erosion?
    • 8.4 Do members get value for money?
    • 8.5 Recent initiatives fall short of what is needed
    • 8.6 Further actions are required — by industry and government
    • 8.7 Fiscal effects
  • Chapter 9 Fund governance
    • 9.1 Fund governance: what is it, why does it matter and why is it regulated?
    • 9.2 Trustees’ skills are key to better governance
    • 9.3 Conflicts must be better managed
    • 9.4 Disclosure by many funds needs to improve
    • 9.5 Investment governance is not sufficiently robust
    • 9.6 More is needed to encourage beneficial mergers
    • 9.7 Some trustee expenditure is misdirected
    • 9.8 Overall conclusions on fund governance
  • Chapter 10 System governance
    • 10.1 System governance is a work in progress
    • 10.2 Multiple regulators have responsibility for system governance
    • 10.3 The respective roles of APRA and ASIC merit attention
    • 10.4 An elevated outcomes testing regime is required to deal with underperformance
    • 10.5 New arrangements are in place for dealing with complaints
    • 10.6 SMSF regulation is appropriate but SMSF-related advice is of concern
    • 10.7 Material systemic risks are not evident
    • 10.8 Significant issues lie in data reporting
    • 10.9 The overall burden of regulation is proportionate from a member perspective
  • Chapter 11 Overall assessment
    • 11.1 The assessment was not straightforward
    • 11.2 Competition is not being fully harnessed
    • 11.3 Long‑term net returns are not being maximised
    • 11.4 Members’ needs are not being fully met
    • 11.5 Not all members receive value for money insurance
    • 11.6 Governance has improved, but still falls short
    • 11.7 System performance and member outcomes have improved, but have a way to go
  • Chapter 12 Competing for default members
    • 12.1 How does the current default system perform?
    • 12.2 Assisted employee choice — an introduction
    • 12.3 Features of the shortlist
    • 12.4 The mechanics of assisted employee choice
    • 12.5 Other features of the proposed arrangements
    • 12.6 Evaluation of the assisted employee choice model
    • 12.7 How best to establish the expert panel
    • 12.8 Some propose a government monopoly provider
  • Chapter 13 Modernising the super system to work better for all members
    • 13.1 Healthier competition in the default segment
    • 13.2 An elevated outcomes testing regime
    • 13.3 Products that meet member needs
    • 13.4 Insurance that works for members
    • 13.5 Best practice fund governance
    • 13.6 System governance that champions members
    • 13.7 How to implement these recommendations
  • Appendices
  • Appendix A Inquiry conduct and participants
  • Appendix B Data sources
  • Appendix C Surveys: an overview
  • References

Printed copies

Printed copies of this report can be purchased from Canprint Communications.

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