OPINION PIECE - by Jane Macnamara, Senior Policy Manager – Superannuation & Retirement Incomes
By the end of May, over 1.6 million Australians had applied to access their superannuation.
We know that a significant number of these people will have reduced their superannuation balances to zero – or will do so in the second round of withdrawals between July and September.
For many, they will have liquidated multiple low-balance accounts gained through different jobs (an occupational risk of being a young, casual worker with multiple jobs and no particular interest in super that I remember well).
This isn’t how any of us would have preferred to see the number of duplicate accounts in the system reduced, but regardless of the circumstances this is probably the closest we can get to a blank slate for superannuation.
Had we acted sooner to fix default super and ensure that every Australian would have only one default account, this could have been a turning point for superannuation. With so many people effectively starting from scratch, we could have delivered them into a better system that actually serves their needs and focuses on good retirement outcomes.
The key recommendation of both the Productivity Commission and Royal Commission – ensuring that Australians have their super deposited onto a single default account, that feels like a bank account they take with them from job to job – has yet to be addressed by Government.
Unfortunately, we’re dooming young Australians to a groundhog day scenario. As the economy re-opens and they return to work, they’ll likely go back to multiple, casual jobs and the multiple default super accounts, hobbling their ability to get their retirement savings back on track.
A ‘default once’ system, combined with the Protecting Your Super changes to consolidate inactive accounts, will be the key driver of a more efficient superannuation system that saves Australians billions in duplicate fees and unnecessary insurance premiums. Until we change the default system, though, we’re effectively baking in systemic inefficiencies that members end up paying for.
Had we implemented these sorely needed reforms, we could have helped kick-start positive engagement with superannuation for these Australians. We could have given them a single account that felt like their own, instead of pockets of money that are too hard to track down and consolidate.
Providing an early release mechanism to support those impacted by the COVID-19 crisis was vital. There’s no use forcing people to keep money under the mattress for retirement if they can’t put pay rent or put food on the table today.
But we do risk a generation of Australians having this as their main point of engagement with the superannuation system, and as a result seeing their super as money to be dipped into now, rather than locked away until retirement.
This is magnified when you can’t see your super growing. I recently found an old superannuation statement from one of my accounts during the GFC, when I was early in my career. The balance of about $6,000 diminished over the course of the year because the account was inactive and the investment returns weren’t enough to cover the fees – no wonder I wasn’t interested in super and didn’t feel like it was worth finding and consolidating my accounts!
We usually get one chance to engage a member at the start of their superannuation journey. For a huge number of Australians, we may get a second shot at shaping how (and if) they think about super. Engaging members is ultimately the responsibility of funds but having a policy framework that didn’t lock disengaged members into inefficiencies of the system would have been a good start.