Finance Your Super ISA: super system should benchmark best performing countries

ISA: super system should benchmark best performing countries

Dutch super system
Ignoring the Dutch super system is tilting at windmills. Photo: Getty
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The Productivity Commission should focus on the world’s best retirement income systems rather than consider inferior models in its review into default superannuation settings, according to Industry Super Australia.

The retirement income systems of Denmark, the Netherlands and Australia are currently ranked first, second and third respectively in Mercer’s 2016 Global Pension Index.  Yet, Chile (ranked 8) and New Zealand (no ranking) are being held up as exemplars in the Productivity Commission’s review process, ISA says.


Heathy super attributes

As part of its submission to the review, released Monday, ISA highlights key features of the successful Danish and Dutch systems. They are are already evident in Australia’s high-performing industry, corporate and public sector default funds, the report says. The successful features are: 

  •   Trusted providers run on a not-for-profit basis only for the benefit of members
  • Industry or multi-industry funds generally affiliated with or approved by industrial parties
  • Wholesale rather than retail in structure to leverage scale and minimise costs.

ISA CEO, David Whiteley, said the focus on New Zealand’s and Chile’s pension systems had set the Productivity Commission review off on the wrong foot.

“The touchstone of a world class pension system comes down to the culture and values of the providers,” said Mr Whiteley. 

“The best systems– just like Australia’s best performing funds – involve employers and employee representatives working together to deliver income security for retirees. They are not about generating profits for banks and financial institutions,” he said. 

“The approach to superannuation in Denmark and the Netherlands – along with the part of Australia’s system built and maintained by unions and employers – is internationally lauded.

“The key difference is that these systems and institutions put member interests above those of others, including shareholders”.

“Super is different to banking and industry super funds are deliberately different to bank super funds,” he said.

The track record of for-profit entities in superannuation systems is poor, and, in Australia, regularly dogged by scandals. In the past week it was revealed the major banks’ wealth management arms will have to pay up to $170 million in compensation to customers who were charged for services they never received, ISA observed.

A separate analysis conducted by Rainmaker for ISA found that retail and bank-owned super funds have gouged up to $1.8 billion in fees by delaying the transfer of accounts to cheaper MySuper products.

“Official APRA data shows the for-profit retail sector has underperformed industry super funds and other not-for-profit funds by almost two per cent a year on average over the last decade. The retail model has comprehensively failed to deliver fair outcomes for members,” said Mr Whiteley. 

“What separates Australia from the best systems is that we allow for-profit funds to participate, despite clear and serious conflicts of interest and an unwillingness to act on them”.

The ISA submission also supports the role of the Fair Work Commission in determining workplace default funds.

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