Last month the Productivity Commission released its long-awaited report on superannuation.
To be more precise, it was the report for: “Stage two, inquiry to develop alternative models for allocating default superannuation members to products.”
This is a key point; this inquiry was about offering up alternative models and was not, in itself, a review of the existing model. Although it was clearly implied in the report that the current default system is uncompetitive which has resulted in duplicate accounts and excess fees being charged to members.
Too slow on reducing duplicate accounts
The problem of duplicate accounts is front and centre in the report and it is the first key take out. In truth improvements have been made by the industry during the last couple of years, with the number of duplicate accounts reducing from an all-time high of 32 million to between 27 million and 28 million.
But the numbers are clearly significantly out; there are around 12 million working Australians, so there is still a long way to go. Arguments can be made that the industry has moved too slowly in fixing this problem and it’s now going to be fixed for them.
There are many reasons for the proliferation of super accounts, some members even choose to have multiple accounts, but default super is a key driver of the problem. With default super, people don’t choose to join a fund and they don’t choose to leave one. They just pick up a new super fund every time they start a new job.