Australia's A$2.6 Trillion Pension System Is `Unlucky Lottery'

(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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