Australia's government said it's committed to tackling structural flaws in the nation's A$2.8 trillion ($1.9 trillion) retirement industry that have eroded savings and cost consumers billions of dollars in unnecessary fees.
The government will try again to stop the common practice of young workers automatically being charged for life insurance through their retirement plans. That's what Sen. Jane Hume, the new assistant minister for superannuation, financial services and financial technology, will tell a conference Thursday. The government will also work to ensure people are given better options for drawing down their savings when they reach retirement.
"There are several challenges with the way our superannuation system is operating," Ms. Hume will say, according to the text of a speech provided by her office. "Our focus must be on improving the efficiency of the system, lowering costs and promoting informed member choice and competition."
A government-commissioned review earlier this year found the superannuation system, which invests the mandatory retirement savings of Australians, was beset by a litany of problems including high fees, multiple accounts and chronic underperformance by some funds. Further, a yearlong inquiry into the financial services industry uncovered misconduct that has hammered the reputation of some funds.
Ms. Hume, who worked in banking, finance and funds management before entering Parliament, said the government had already acted on many of the recommendations of the Productivity Commission and the inquiry led by Kenneth Hayne.
Under laws coming into force next month, the tax office will have greater powers to help savers consolidate low-balance or inactive accounts; fees will be capped on accounts with A$6,000 or less, and exit fees will be barred. The Productivity Commission inquiry found a third of all superannuation accounts are unintended, costing A$2.6 billion in unnecessary fees and insurance each year.
Further, the prudential regulator in April was given greater powers to take action against under-performing funds before members suffer significant harm. That includes civil penalties for fund directors and trustees for breaching their obligations to act in the best interests of their members.
Ms. Hume outlined further steps the government will take, including trying again to pass legislation that ends default insurance for under-25s or on low balance accounts. That legislation was blocked in parliament earlier this year.
There is currently "very little guidance on how retirees should draw down their savings when they reach retirement," Ms. Hume will say. Funds will be required to develop a retirement income strategy, and the government is "also exploring ways of expanding the range of retirement income products available."
A review of the capabilities of the prudential regulator is almost complete, and the government is also planning a review of the retirement income system — a recommendation of the Productivity Commission.
"This is a crucial time for financial services in Australia," Ms. Hume says in the text of the speech. "A lot is happening already and a lot more needs to happen, because financial services are the arterial veins of our economy."
