During an AIST media conference, Ai group’s chief policy adviser Peter Burn explained how changes to superannuation that are designed to protect members, such as stapling, will likely hurt them over retirement income.
Under the government’s Your Super, Your Future reforms, from July there will be “stapling’ of members” contributions to a single account – effectively, superannuation for life.
While in support of the idea of removing multiple funds, Mr Burn noted stapling achieve this purpose but at a great cost to members.
“What that means that people will face the risk of being initially defaulted into an underperforming account and staying with that throughout their working life,” Mr Burn said.
The policy officer cited the Productivity Commission found 14 per cent of funds underperform with members naturally weeding out having all their money in one underperforming account through creating multiple accounts as they go through work.
“The effect of this process is that without weeding out underperforming accounts is that after your third job you have less than 0.5 per cent chance of having all your money in a low performing fund,” he said.
“But the downside of the present proposal is that 14 per cent of people remain in a low performing fund.
He explained that the 0.5 per cent of people who currently have all their money in an underperforming fund will become 14 per cent if the member is stapled to a default account.
“So that is a terrible outcome for those people. They end up with low performance, low investment returns, high fees and they are stuck with that until retirement,” he said.
Despite facing its critics, the minister for superannuation Jane Hume has been vocal in her support of the changes, highlighting the importance of stapling, which avoids creating duplicate accounts, leaving members as much as $98,000 better off in retirement.
Ms Hume also highlighted addressing fees for younger members that are unnecessarily reducing balances.
“Putting members’ interest bill prevented members, particularly young members, from paying for automatic insurance that is unnecessary,” she said.
“Often, these excessive premiums eroded the balances of young people that took years and years of contributions to finally increase their balance, which is not an inspiring entree into the world of compulsory super saving.”
