"The final (Financial System Inquiry) report makes 44 recommendations to improve the efficiency, resilience and fairness of Australia's financial system," Financial System Inquiry Chair, David Murray AO, told a CEDA audience in Sydney .
Delivering the recommendations of the final report, David Murray said the Inquiry has identified two major issues with the superannuation system.
“Fees are too high in the accumulation stage given the substantial growth we have seen in fund size and member balances, and superannuation assets are not being converted into retirement incomes as efficiently as they could be,” he said.
“The absence of strong consumer-driven competition remains a significant problem in the accumulation phase.”
In regards to MySuper, which aims to improve efficiency and competition by mandating simple low-cost default products and by encouraging funds to become larger, Mr Murray said, “It has only been in place for around 18 months; however, we are not confident it will drive the efficiency improvements required.
“We have recommended a review of MySuper by 2020 to assess whether or not it has delivered sufficient improvements in competition and efficiency.
“If it has not been effective, we recommend the Government introduce a competitive mechanism under which only the best performing funds would be selected to receive default superannuation contributions.
“This would allow all default members to benefit from the type of purchasing power that currently delivers lower fees to employees of large firms that have negotiated bulk discounts for their employees.”
Mr Murray said the Financial System Inquiry found the retirement phase of Australia’s superannuation system to be under-developed.
“Members need more efficient retirement products that better meet their needs and increase their capacity to manage longevity risk,” he said.
“We therefore recommend that all fund members should be offered what we have called a Comprehensive Income Product for Retirement at the time they switch from accumulation to retirement.
“This would combine an account-based pension with a pooled longevity risk product.
“Retirees would benefit from these products because they would have higher incomes and would not be exposed to the risk of outliving their savings.
“The trade-off would be that less money saved through superannuation would be available for bequests, reflecting our view that the system should be about retirement incomes.
“Collectively, the Inquiry’s superannuation recommendations have the potential to increase retirement incomes for an average wage earner by around 25 to 40 per cent, excluding the Age Pension.”