AUSTRALIA - A new report by the Australia Institute called for the creation of a government-backed universal default fund option that would cap fees at 1% of total assets managed.
The report, released today, said managing the default fund at that price could save workers up to A$100,000 (US$88,246) in retirement.
The default funds would apply to workers who do not have access to a low cost default option through their existing agreement. The Institute estimates that could total up to 16% of all workers.
"There has never been a proper debate in this country about the issue of superannuation fees and how to minimise them," said Institute research fellow David Ingles, a co-author of the report.
"Evidence clearly shows that most people simply accept the default option offered by their employer. Many don't even realise how much of their money is eaten away by fees," he added.
The Institute reported that the aggregate administrative cost of the Australian superannuation system is 1.35%, or about A$14bn per year.
The Institute envisages a default fund with passive management in domestic and international equities, cash and bonds. It could also take a life cycle approach, could carry a reserve fund to smooth annual return fluctuations or could consist of government-backed annuity products to address longevity risk.
The A$1.1trn superannuation industry has come under pressure from the government to reduce fees.
While the Institute called the current fees "enormous," a report released yesterday comparing the country's administration and investment fees to those in the US, UK and Japan, showed that fees were in line with those of other countries' schemes.
The report, conducted by Deloitte Actuaries and Consultants on behalf of Australia's Investment & Financial Services Association, said Australia's fees were competitive, but that the country will also have a slight disadvantage to others because of its smaller scale.
Deloitte actuarial partner Michael Monaghan said: "There are clear scale benefits when it comes to fees charged by superannuation funds in each country and sector."
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In this week's Pensions Buzz, we want to know if you believe there is ever a case for combining retirement savings products with other savings products, and if the PPF levy for sponsorless schemes is appropriate for DB consolidators.