Eliminate super cross-subsidies says Grattan Institute

24 July 2018

Much more still needs to be done to reduce the excessive cost of superannuation, which currently stands at almost two per cent of Australia’s gross domestic product (GDP), according to the Grattan Institute.

In a submission lodged with the Senate Economics Legislation Committee inquiry into the Government’s Budget changes to superannuation, the Grattan Institute fully backed the Government’s approach around making insurance within superannuation ‘opt-in’ for those aged under 25.

“The Bill will substantially reduce the costs of superannuation,” the Grattan Institute submission said. “It will constrain inappropriate income protection, life and total and permanent disability insurance (TPD), resulting in higher superannuation balances at retirement for many Australians. And it may increase competition between superannuation providers a little, lowering superannuation fees.”

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“However much more still needs to be done to reduce the excessive costs of superannuation, which currently exceed $30 billion a year (excluding insurance premiums), almost two per cent of Australia’s GDP,” it said.

Countering concerns that the Government’s policy approach would result in an increase in group insurance premium, Grattan Institute argued this was merely confirmation of the manner in which young super fund members were cross-subsidising older members.

“The current system appears to have very substantial cross-subsidies. Analysis by both Rice Warner and KPMG in submissions to this Committee claim that the proposed changes to default insurance would lead to large increases in insurance premiums,” it said. “This strongly suggests that those who are young, have inactive accounts, or small balances, are cross-subsidising everyone else. It is not obvious why it is desirable for there to be an insurance cross-subsidy for those who are old or have large balances.”

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