Speaking at the Financial Services Council annual conference in Cairns last week, Mr Minifie – who directs the Grattan Institute’s Productivity Growth Program – faced a hostile audience as he made comparisons between Australian superannuation fees and international structures.
He drew heavily on the recent Grattan Institute paper, Super sting: how to stop Australians paying too much for superannuation.
“Our fees and our expenses are high compared to the best practice [overseas] – and on some measures we're even high compared to the median,” said Mr Minifie.
“Broadly, we are not among the cost leaders – especially with our scale. That appears to be a solid finding [from the paper],” he said.
Making matters worse, Australia is failing to use the mechanisms that are associated with driving down fees in other countries, said Mr Minifie.
In particular, he pointed to the pension system in Chile where the government puts out tenders for low-cost fund managers on behalf of the private default system.
The Chilean default fund fee has “plummeted” over successive auction rounds over the last few years, said Mr Minifie.
Chilean pension members have the opportunity to switch to the low-fee default fund, he said – something Australia could adopt by giving taxpayers the chance to review their superannuation at ‘tax time’.
But State Super Financial Services managing director Michael Monaghan said Mr Minifie was “muddying the waters” by making comparisons between Australian and overseas systems.
“What really worries me about what you've said is this Chilean model of an annual opportunity for members to switch funds,” said Mr Monaghan.
“To me that gets at the fundamental basis of the superannuation system, which is a long-term relationship,” he said.
Rice Warner chief executive Michael Rice said there are three unique factors in the Australian system that make it look expensive by comparison with the rest of the world.
First, Australians have a choice of fund; second, they have a mandatory life insurance system with very high premiums; and third, most superannuation funds have financial advice embedded within them, said Mr Rice.
“So when we do these international comparisons they do have to be fair,” said Mr Rice.
The Australian system still has a long way to go when it comes to efficiency, he said, adding that “the last thing I’d do is change the structure”.
In response, Mr Minifie said the Grattan Institute’s policy is not aimed at Australians who are exercising choice in their superannuation arrangements.
“We wouldn't characterise what we've put forward as 'ripping up the current system',” he said. “We would regard it as quite a surgical intervention to push fee-based pressure on behalf of people who are not availing themselves of the sophisticated choices that are clearly adding value for other Australians.”