The super nest eggs of Australians could benefit from $416 billion more – up to $189,000 per person – under a new proposal from Industry Super Australia (ISA) to overhaul the superannuation system.
Independent consulting firm KPMG has undertaken a detailed cost-benefit analysis of the plan, which found that the best way to eliminate multiple super accounts and lift performance across the system was to automatically combine a person’s super when changing jobs into a single quality checked fund.
The KPMG report examines how intelligent use of technology could tackle the two most costly drags on the system – chronic underperformance and multiple accounts – simultaneously.
The report models two options to implement the Royal Commission recommendation that a person should only have one default account, with machinery developed to ‘staple’ a person to a single default account.
Industry super funds recommended model would see the money in a worker’s super account follow them from job to job, by automatically rolling over the money into a quality checked, single account when they change jobs, unless they choose otherwise.
The alternative is to allocate a person to a single fund for life, unless they choose otherwise.
KPMG found that the industry super fund model of automatic rollover would not only eliminate multiple accounts, it would accelerate the weeding out of underperforming funds from the system sooner, delivering greater returns to workers.
The Productivity Commission found a person in an underperforming super fund could end up more than half a million dollars worse off at retirement compared to a person in high performing fund.
If the Morrison Government chose to adopt and implement the automatic rollover model, workers in underperforming funds would benefit from an extra $416 billion in returns over a 25-year period – the equivalent of nearly $200,000 per person, or an extra $7,560 a year, over their working life.
In contrast, under the fund for life model, workers could end up stuck in dud, underperforming funds for many years, and miss out on hundreds of thousands of dollars by the time they reach retirement.
Separately, workers would also benefit from $47.3 billion in savings in fees and premiums, including the impact of recent changes, through the elimination of multiple accounts – nearly $4 billion more than the fund for life option.
The automatic rollover model is based on international schemes such as the New Zealand Kiwi Saver scheme. While some headway has been made by Government to eliminate multiple accounts through the Protecting Your Super changes, more needs to be done.