Proposed changes to the Australian superannuation system could see high fees slashed and lump sum payouts made a thing of the past.
Financial System Inquiry chairman David Murray raised the prospect of cutting fees by 40 per cent across the entire sector.
The changes, which were first raised in the Super System Review in 2010, would boost the average retirement payout by $40,000 and would save members approximately $7 billion per year.
“I’ll take some flak for suggesting this, but it’s too important not to,” Mr Murray said at the National Press Club on Tuesday after the release of the inquiry’s interim report.
Australian superannuation fees are twice as high as those in countries with similar-sized super systems. The report says that super fees fell by 25 basis points from 2003 to 2013 but economic conditions have prevented further falls.
The report also says fees should not be looked at in isolation.
The Financial System Inquiry has also proposed placing restrictions on the ability of Australians to spend large lump sums from their super, knowing that they can rely on the age pension.
Financial Services Council chief executive John Brogden agrees consumers need certainty and stability in policy settings to have trust in the super system.
But while the report says super fees are high by international standards, Mr Brogden believes the MySuper system, although less than 12 months old, has already reduced fees.
The Association of Superannuation Funds of Australia welcomed the focus on the retirement phase of super, saying a “whole-of-life” approach will ensure all phases are managed to deliver the best outcome for Australians.
Financial services group Challenger chief executive Brian Benari thinks the “brutally honest” account highlights shortcomings in the system that leaves too many retirees managing their own longevity risk.
“The complexity of this task means that they either underspend and live too frugally, or overspend and fall back on the modest age pension,” he said.
– with AAP