Superannuation savers could gain an extra $189,000 under a new proposal by Industry Super Australia.
Based on analysis performed by financial consultancy KPMG, Industry Super (ISA) said the best way to increase Australians’ savings was to eliminate multiple super fees and boost funds’ performance.
Productivity Commission: This is how it wants to fix super
The report echoes proposals put forward by the Productivity Commission, the Royal Commission and the federal government in recent months, which found changes to super could reap $2.6 billion in rewards.
ISA found that a system where one’s superannuation was automatically combined into a single quality-checked fund upon changing jobs would have the greatest impact.
“Automatically combining a person’s super when they change jobs will eliminate multiple accounts and connect workers with high performing funds sooner, delivering hundreds of thousands extra into accounts,” Industry Super Australia acting chief executive Matthew Linden said on Thursday.
However, he also said that this will only work if weak funds are weeded out. In order to do so, default funds would have to meet certain eligibility criteria.
The KPMG research added that by having a smaller number of default funds, it would prevent the proliferation of smaller and weaker funds which historically scooped up workers in certain industries at their first jobs.
“Putting a worker in a single fund for life could see them stuck in a dud, underperforming fund that will ultimately leave them worse off at retirement.”
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“Chronic underperformance and multiple accounts are the two biggest drags on the system, costing workers hundreds of thousands of dollars in hard-earned super. This fixes both at the same time.”
The KPMG found two ways to carry out the Royal Commission’s suggestion.
In both applications, workers would only ever have one fund unless they explicitly chose otherwise.
However, the first application saw future superannuation contributions directed to the member’s existing account upon changing jobs.
The second option would see a new super account created by default, with funds in previous accounts rolled over whenever a worker changed jobs.
KPMG found that the second option, in which rolling over accounts into the one would eliminate multiple fees and help streamline attempts to cut underperforming funds, saving Australians a collective $416 billion, or $189,000 individually.
This report follows a study from superannuation provider Rest which found Australians were wasting a staggering $2.6 billion on fees and insurance on multiple superannuation accounts.
Rest chief executive Vicki Doyle said financial apathy was a major problem in Australia.
"One-in-five Aussies have never checked their bank or credit card statements, and a fifth have never checked their superannuation account,” he said.
"The Productivity Commission Report into superannuation found that a worker with two superannuation accounts across their working life will be $51,000 worse off at retirement than a worker with just one account.”
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