Australians are paying $2.6 billion in fees and insurance premiums every year on extra superannuation accounts they have been given when changing jobs.
A Productivity Commission investigation into the super system has found a third of accounts, or about 10 million, are unintended multiple accounts.
“With default funds being tied to the employer and not the employee, many members end up with another account every time they change job,” the commission’s deputy chair Karen Chester said on Tuesday.
The commission recommends Australians only be placed in a default fund the one time, when they start working for the first time.
It also wants them to be given a “best in show” list of 10 high-performing funds, identified by an independent expert panel.
The commission believes existing members should be able to switch to the nominated funds too.
“All members should be able to engage with their super without being bamboozled,” commissioner Angela MacRae said.
Financial Services Minister Kelly O’Dwyer said it was scandalous people’s retirement nest eggs are being eroded, and that young people and low income workers in particular were being ripped off.
“We’re going to use the Australian Taxation Office to actively reunite people with their money which will mean in just one year $6 billion being returned to members,” Ms O’Dwyer told reporters in Canberra.
The Minister was also concerned about zombie insurance accounts, where people have cover across multiple funds, but often can’t lodge claims because their super balance is too low.
Other recommendations include making funds provide insurance cover that is good value for money.
Trustees of underperforming funds should also be merged with better performing funds.
Labor frontbencher Brendan O’Connor said the opposition needed time to review the report’s recommendations, but he questioned the coalition’s record in the area.
“To give Kelly O’Dwyer responsibility for superannuation is like giving Dracula control of the blood bank,” Mr O’Connor told reporters in Canberra on Tuesday.
“We’d have to ensure that if there are any changes it would be in the interests of those that are the recipients of those funds.”
The commission describes its findings as a mixed report card, and said the architecture of compulsory super is outdated after nearly three decades.
Being stuck in a poor-performing default fund can leave the average worker with almost 40 per cent less to spend in retirement, it said.
“Even for a 55-year-old today, the difference could be up to $60,000 by the time they retire. And for today’s new workforce entrant, they stand to be $400,000 ahead when they retire in 2064,” Ms Chester said.