Super idea but we must be cautious

MANY of us still don’t spend a lot of time thinking about super, and often just assume our fund is doing the right thing.

For many, that assumption winds up being the costliest financial decision they will make. It can cost young workers more than $500,000 — that’s the difference, on retirement, between being in a top-performing fund and a dud.

So we’ve welcomed news from this month’s budget that the federal government is at last planning to act on fund underperformance.

Any changes should deliver more money to members, not less.

The government plans to introduce new performance tests to weed out the duds and staple people to a fund forever unless they choose a different one.

It all sounds sensible. But unless the government’s reforms drive poor-performing funds out of the system first, it could condemn millions of Australians to being stuck in a dud fund for life.

Without refinements to make it more robust, the government’s performance test could end up costing many people hundreds of thousands of dollars from their

THE GOVERNMENT’S PROPOSAL IS TO BAN FUNDS THAT REPEATEDLY FAIL THE TESTS FROM TAKING IN NEW MEMBERS, BUT IT DOES LITTLE TO GET MEMBERS OUT OF THOSE FUNDS INTO A GOOD ONE. WE NEED TO DO BETTER.

retirement. But the government’s reforms will allow the duds to keep fee gouging because their administration fees and other hidden charges are exempt from the performance tests.

Excluding any type of fees from such an important test would be a big mistake.

Remember when we used to buy airline tickets online — you didn’t put much faith in the advertised price until you got to the payments page to see what you’d be up for after all taxes and charges. It’s the same with super.

The only measure that matters to how much Australians have at retirement is what members get into their account — that is investment returns, minus all fees, costs and charges. That must be the test — what a fund’s long-term investment returns delivers to the member’s super account, anything else is illogical.

Alarmingly, there is also a loophole that means dozens of the worst-performing super products and investment offerings will slip through the net.

The consequence for repeated failures should be removal from the system.

The government’s proposal is to ban funds that repeatedly fail the tests from taking in new members, but it does little to get members out of those funds into a good one. We need to do better.

The government is headed in the right direction, and with some refinements to their proposals, Australians’ savings will not only have stronger protections, but everyone will reap the benefits of a much bigger nest egg.