The government is rightly pursuing reforms to weed out underperforming funds and eliminate multiple accounts – but there are concerns “stapling” members to a fund for life could leave them tied to a dud.
The superannuation reforms outlined in the Budget to ‘staple’ members to their existing super fund and stop underperforming funds from taking on new members is not the most effective way to remove multiple accounts. Instead members’ money should be automatically rolled over into a new fund when they change jobs.
The issues of underperformance and multiple accounts must be tackled but with far more ambitious reforms and a more rigorous performance assessment.
Being stuck in a chronically underperforming fund and paying fees across multiple accounts are a big drain on member savings – costing some member more than $500,000 at retirement.
However, the policy details outlined in the budget need re-calibration and strengthening to fully realise benefits for members.
Hooking a member to one fund risks slowing the migration of members to better quality products by stapling them to existing poor performers. Unfortunately, the performance ‘benchmarks’ announced will not stop members remaining in these dud products and for their ongoing contributions to be drained by high fees and lousy returns.
Finally, the stapling mechanism announced won’t actually help consolidate the existing 10 million surplus accounts – it will only prevent new ones being created.
Last year Industry super funds outlined a reform blueprint rigorously assessed by KPMG which found members would save an estimated $4 billion extra in fees and boost returns by $416 billion over the next 25 years relative to the account for life proposal just outlined in the Budget.
Multiple accounts are eliminated more effectively by stapling Australians to their money – so their super automatically rolls over to a new quality checked super fund when they start a new job – unless they choose otherwise.
If implemented KPMG’s independent analysis found the policy could deliver a $189,000 per person retirement boost and accelerate the exit of dud super funds from the system.