(Bloomberg) -- Australia’s A$2.6 trillion ($2 trillion) pension system is dogged by persistently underperforming funds and millions of superfluous accounts that waste money on management and insurance fees, according to a government review.
Addressing those two structural flaws alone could deliver an extra A$3.9 billion to pension accounts every year, Australia’s Productivity Commission said in a draft report on the nation’s superannuation system. Some 10 million accounts, or a third of the total, are unintended multiples and more than a quarter of pension funds underperform on a consistent basis, the commission said.
Australia’s compulsory-contribution pension system “has become an unlucky lottery,” the commission’s deputy chair, Karen Chester, said in a statement.
Here are some of the report’s key points:
- Addressing the system’s unintended multiple accounts and underperforming funds could deliver an extra A$61,000 by retirement for a 55-year-old today and add $407,000 for a new job entrant when they retire in 2064
- Fees remain a significant drain on returns
- Not all members get value out of insurance in their pension funds, and retirement balances can be eroded by more than A$50,000 by duplicate or unsuitable policies
- Competition, governance and regulation is inadequate, and policy changes are required
- Rivalry between funds in the default segment is superficial, and there are signs of unhealthy competition when members choose a product
- Members should only be allocated to a default product once when they enter the workforce
- Stronger governance is needed, especially for board appointments and mergers
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