When it comes to saving for retirement many Aussies rely on superannuation funds to build up their nest eggs, however a study has revealed that taxpayers and savers are losing out on billions of dollars every single year due to an “astonishing” number of inconsistencies and loopholes that have been built into super law reform.
The report, written by University of Technology Sydney professor Thomas Clarke, suggests that law reforms concerning the for-profit superannuation sector over the past three decades have been slackened in favour of the providers, predicting that as a result taxpayers will lose a total of around $53 billion over the next 10 years.
Titled Serious Failures in Superannuation Governance and Critical Omissions in Superannuation Regulation, the study was funded by the Australian Institute of Superannuation Trustees (AIST) and compiled by Clarke using data from SuperRatings and Rice Warner.
“There are evident weaknesses in regulation and governance in the superannuation sector exposed in the many current and proposed exemptions, gaps and inconsistencies that apply to Choice products and investment options, platforms, legacy products, new products and self-managed super funds,” Clarke said.
“This panoply of self-interested exemption exhibited by the for-profit superannuation sector has arisen over time, incrementally and without any ostensible rationale other than to benefit the providers.”
The report says the watering down of laws and consumer protection has led to “legislative gaps” causing “a systemic lack of comparability of data in the super system”, meaning there is a lack of information available to allow investors to make informed decisions when selecting a fund.
According to SuperRatings, in the non-MySuper Choice sector, bank and retail-owned funds charge between 117-182 percent more than profit-to-member funds and generally underperform over both the short and long term.
In 2010, following the Cooper review into the super sector, the Labor government introduced new low-cost and simple super products known as MySuper. As a result, any default fund for new employees who had not selected their own fund had to be a MySuper fund.
MySuper funds are required to meet certain criteria, such as having lower fees and reporting comprehensive fee and performance data to the Australian Prudential and Regulatory Authority. However, non-MySuper funds – known as Choice funds – remain exempt from the criteria.
AIST CEO Eva Scheerlinck said regulatory concessions provided to the for-profit super sector had watered down many vitally important consumer reforms in superannuation. This included government decisions not to improve disclosure and transparency in non-MySuper funds, which manage more than $1 trillion of super across eight million member accounts.
“Constant erosions to the legislation and for-profit super providers being let off the hook has been at an enormous cost to consumers who are effectively left to fend for themselves,” Scheerlinck said. “We have a mandated super system but providers managing more than $1 trillion of super savings are not held to account.”
She added: “All sorts of arguments have been put up by the retail super sector as to why these things shouldn’t happen when what they really fear is losing the easy profits to be made from consumers being in high fee, opaque products.
“Due to the complex nature of super, a carve out can sometimes seem like a minor amendment when in fact it can be worth billions of dollars in profit to a bank.”