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BFCSA: Australian Superannuation - $18.6 billion in fees due to too much competition says RBA - Nick Hubble explains ODD economics

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The Odd Economic Laws of the Superannuation industry

by Nick Hubble / on April 14


Clancy Yeates in the Sydney Morning Herald explained how Australians are getting ripped off by the Super industry: ‘…research firm Rainmaker estimates Australians paid $18.6 billion in fees for their retirement savings to be managed last financial year,’ which is ‘$1075 for every adult in the country, including those who don’t even have super.’ According to the Reserve Bank of Australia, only Spain and Mexico’s savers pay more as a percent of assets under management. But this is where things get weird. You see, the normal rules of economics don’t apply to the Super funds industry. Believe it or not, the reason for this blowout cost is too much competition. The Reserve Bank says the competition between different Super funds to get their hands on your compulsory contributions is so fierce that…costs go up.  Competition drives up costs? Hmmmm......... We think Yates is right about the real reason superannuation fund costs are so high—apathy. The choice of Super fund for 50-70% of employees ends up being made by the employer. Employees don’t have the foggiest idea where 9.25% of their income is going. And employers have little incentive to care what deal their employees are getting.

It’s remarkably similar to a tax, only the money goes to the financial oligarchy instead of the government.  Compulsory payments with apathy is a very dangerous system. It allows people to get away with murder. Only those who take charge themselves (by setting up a SMSF) deal with the problem.  The Centre of Excellence in Population Ageing Research reckons the situation is so bad Australia Post and Centrelink should be called in to help. The sector needs competition!   Huh? But you just said…oh never mind.


Here’s the scary bit. Professor Piggott from the Centre of Excellence in Population Ageing Research says we need to manage the outflows of the Superannuation system like we manage the inflows................If the government can force you to fork over more than 9% of your income to a private institution, it can also control how much that institution pays out in retirement..........Professor Piggott reckons you should only be allowed to access your savings as an income stream. In fact, your Super balance should be published as the size of income stream you would get if you retired. At the moment, reporting such an estimate is banned! .............The financial industry is a notoriously big spender (on politicians). And the union ‘industry’ is notoriously influential in politics. The Super industry is largely controlled by unions. So, put the two together and you get the best of both worlds.  Make no mistake, these people like to meddle. They’ve created an incredible income stream for themselves in Superannuation. The idea that a financial and union oligarchy can forcibly get its hands on a portion of 9.25% of every worker’s income is surreal if you put it like that.  They won’t let go of all those assets easily

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  • doyla66
    doyla66 Saturday, 19 April 2014

    The Centre of Excellence in Population Ageing Research reckons the situation is so bad Australia Post and Centrelink should be called in to help. The sector needs competition!
    Is that because there's something radically wrong with The Centre of Excellence in Population Ageing Research?
    Like the Productivity Commission?
    I think they're all just trying to guess a solution.
    It's counter intuitive but it looks like Clancy Yeates has got it right. Big spenders, competing -> big advertising, big fees, big luncheons, big time lobbyists.
    There's a simple solution but the Govt with it's growth and competition solutions wouldn't go for it: Have one superfund run by the Govt. Maybe that's where Centrelink could help ...

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