The continued high operational costs of the defined contribution superannuation system in Australia will drive people to consider pulling out of the system altogether, according to former Labor Minister Nick Sherry.
These costs have not fallen in 20 years despite various improvements to the system, which Sherry described as one of the most complex and expensive by world standards.
Sherry, who was speaking at an Australian Centre for Financial Services briefing this morning, stated that while Australia had a defined contribution system offering choice of fund and choice of investments, it did not allow people the choice to withdraw from the system altogether.
He stated that those who would not receive the full benefit of a long-term 12 per cent superannuation guarantee-funded pension were most likely to look outside the superannuation system.
They would reject superannuation as a central plank in retirement incomes because of costs, negative returns, fund or advice failures, or pressure to devote funds to immediate needs.
However any move to allow these people to opt out of the mandatory defined contribution system would be met with a fierce debate, according to Sherry.
He said this debate, which was likely to come, would be “interesting but also nasty” because of vested interests that have grown within the superannuation system.
Sherry said that the absence of a centralised administration system and the development of standalone systems among superannuation providers had made the Australian system both complex and costly.
“Everyone has built their own platforms and models, with some still loaded with legacy products, which makes modernisation a challenge,” Sherry said.
“I have not seen any other system with this level of complexity, were people have had to jerry-build administration systems which in turn have driven the need to get advice on what to do.”