Up to $94 billion of superannuation savings is “trapped” in small, subscale and underperforming superannuation funds due to the industrial awards system.
The figure comes from the Financial Services Council (FSC), which says Fair Work Commission’s default super fund selection process is leaving up to 1.7 million people worse off in retirement.
Analysis by the FSC found there are 33 super funds listed under modern awards which each manage less than $10 billion. The average performance of the 33 funds over 10 years was “just” 4.50% per annum, which was 0.80% lower than the average of all ‘growth’ super fund options.
The FSC calculates that this performance gap could leave consumers $170,000 worse off by retirement.
“If this many Australian workers were enabled by law to languish in poorly paying jobs with working conditions way below their peers, for as long as 40 years, there’d be outrage across the entire community,” said FSC CEO Sally Loane.
“So we shouldn’t tolerate a system which leaves people in superannuation funds delivering significantly poor returns, for years and years. Many can’t change funds because of the current industrial laws governing default super, and many are chronically disengaged and disinterested. Either way, the system needs to change if the policy is going to work for all Australians.”
“The prevalence of subscale funds in the default system is a major public policy issue which needs to be addressed given they have such a negative impact on consumers’ financial outcomes,” Ms Loane said.
The FSC, which represents a number of large financial institutions, has been campaigning for greater access for the funds operated by its members to the default super system.
The Productivity Commission conducted an inquiry into alternative models for selecting default super funds, which was due to be given to the Government in August 2017. However this final report will now be incorporated into report into the competitiveness and efficiency of the superannuation system, due in June 2018.