Shock horror! Super funds are gouging members

Australian Super chief executive, Ian Silk, has bemoaned that the financial services industry is using the compulsory superannuation system to enrich themselves, rather than look after their members. From The AFR:

As pressure grows on super funds to cut fees, Mr Silk on Tuesday warned there was a risk that savings from the funds becoming more efficient were not being passed on members.

“The biggest concern as the superannuation sector grows is that the financial benefits from the economies of scale are being captured by the agents and not ordinary Australians,” Mr Silk said. “Too many people are looking to clip the ticket here and clip the ticket there as the money washes through the industry rather than put the interests of members first.”

No shit Sherlock. This is what happens when government policy mandates that working Australians must divert 9% of their gross incomes into superannuation, creating one giant parasitic rent-seeking industry in the process. Seriously, what did they expect?

As the draft report of the Murray Inquiry into Australia’s financial system noted:

The operating costs of Australia’s superannuation funds are among the highest in the Organisation for Economic Co-operation and Development (OECD)…

The Super System Review found that fees had not fallen in line with what could have been expected given the substantial increase in scale (Chart 4.2)…

If superannuation were a well functioning and competitive market, average fees would have fallen as the value of funds under management has risen, given the funds management is largely a fixed cost business.

Yet, despite the huge explosion of superannuation balances since the superannuation guarantee (compulsory super) was introduced in 1993, average fees have barely changed.

This suggests that Australia’s superannuation funds are not just inefficient, but are gouging members – again due largely to our system of compulsory contributions, which has provided the industry with a “sheltered workshop” within which to operate.

When combined with the egregious budgetary cost of superannuation concessions, one wonders why Australia persists with its compulsory superannuation system, which has become the epitome of an entitlement industry.

As noted by Alan Kohler recently:

Superannuation is the only utility that you are required by law to buy and whose prices are not set by regulation…

You could not invent a better gravy train, so it’s perhaps not surprising that it fails both its customers and the nation.

Absolutely.

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