Former CBA chief executive David Murray proposes a revolution in the country’s superannuation system. Photo: Andrew TaylorThe Financial System Inquiry has proposed a revolution in Australia’s superannuation system that would banish high fees and force Australians to take more super as income rather than lump sums.
Unveiling what are officially called ”options” rather than recommendations, inquiry chairman David Murray raised the prospect of a 40 per cent cut in fees across the entire sector.
Such a cut would deliver a saving to members of about $7 billion per year. It would boost the average retirement payout by $40,000.
”I’ll take some flak for suggesting this, but it’s too important not to,” Mr Murray told the National Press Club.
Australian fees are twice as high as those in countries with similar-sized systems. Super itself is much more heavily weighted to riskier assets such as equities.
The report suggests banning borrowing by super funds and slowing down the process by which members can switch funds, which it says encourages providers to hold more short-term assets than they should.
Its most radical suggestion is that Australia follow the lead of Chile and auction off the right to be the nation’s default super fund. The company offering to charge the lowest fee would become the default provider for all new accounts until the next auction. Chile used the system to cut default fund fees by 65 per cent.
The inquiry also wants some sort of restriction on the ability of Australians to take and spend super lump sums knowing they can fall back on the age pension. Its most extreme option would mandate the setting aside of a portion of lump sums for so-called deferred annuities, which would pay out only after the age of 85 should the retiree live that long.
It is caustic in its findings about super tax concessions, observing that most go to the top 20 per cent of earners, people ”likely to have saved sufficiently for their retirement even in the absence of compulsory superannuation or tax concessions”. It is likely to recommend changes to tax concessions that could form part of the white paper on tax reform to be developed next year.
Mr Murray refused to be drawn on whether, if super fees come down, there would still be a need to lift Australia’s compulsory super contributions from 9.5 per cent of salary to 12 per cent as presently legislated, saying the inquiry would be happy to receive submissions before it prepares its final report to be released in November.
Set up by Treasurer Joe Hockey to update the 1997 Wallis inquiry in light of the global financial crisis, the Murray inquiry finds the financial system is at risk from the perception Australia’s big four banks are too big to fail and would be rescued by the government.
It floated options to deal with what it calls ”moral hazard”, one of which is ring-fencing crucial bank functions such as taking deposits and writing home loans from other activities.
Although a former chief executive of the Commonwealth Bank, Mr Murray is harsh in his criticism of the banks’ systems for rewarding their financial planners.
”The thing we have been very clear on is our view that conflicted remuneration can weaken advice,” he told Fairfax Media.
”There’s not much we can do at the moment. The government is in the middle of having this voted on in Parliament. But there is an information asymmetry between an adviser and a client, one we will be addressing in our final report.”
The interim report suggests outlawing the term ”general advice” and replacing it with ”sales” or ”product information” if people providing it continue to receive payments from the providers of financial products.
A spokesman for Mr Hockey said the Treasurer would not be commenting on the report. It was Mr Murray’s and up to him to outline it. Labor spokesman Chris Bowen said he would give it consideration.
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