Reducing administrative costs in the Australian superannuation system

Abstract

The Australian system has managed to provide remarkably high real returns to many contributors which is, after all, the bottom line in assessing the results of such a system. It has done this despite imposing administrative costs which appear to be rather high, even by the standards of other countries imposing mandatory private superannuation savings. To this extent, the system must be assessed as a resounding success. Nonetheless, feasible reductions in administrative and investment costs, currently running at about 1.3% of total assets under management, could see final benefits for many members raised by as much as a quarter or even one-third. This paper outlines several options for reform ranging from the relatively small to full government organisation through a new Office of Superannuation. In all case however it is envisaged that opting out of the SG tier will continue to be possible for schemes paying superior benefits. The option of full government organisation of the system would require much consideration as to governance provisions which would minimise political interference in the running of the fund. Those who do not believe that such interference is avoidable will not, of course, support such a plan, although they might support some of the less drastic options considered. By the same token that scheme holds out the potential to maximise the cost savings potentially available.