The federal government's Productivity Commission has delivered a damning report into Australia's superannuation system.
The commission describes its findings as a mixed report card and says the architecture of compulsory super is outdated after almost three decades.
Many Australians acquire multiple super accounts when they change jobs and end up having their divided balances gradually eroded by fees.
The Productivity Commission recommends Australians only be placed in a default fund one time, when they start working for the first time.
That would result in the funds being tied to the employer, not the employee.
The Australian Tax Office estimates, in 2014/15, around $2.85 billion in guaranteed superannuation payments went unpaid.
From July the 1st, the Australian Tax Office will get new powers to track down inactive super accounts with low balances and merge them, using data-matching technology.
The crackdown could reunite Australians with $3 billion in the first year.
Financial Services Minister Kelly O'Dwyer says it is scandalous that retirement savings are being eroded, with young people and low-income workers especially being victimised.
"We know, from what the Productivity Commission has looked at, that it can mean, for somebody who's paying high fees and charges, that they are losing around about two years' worth of pay, ultimately, with their retirement savings. We know, with high insurance premiums, again, for lower-income earners, that it can mean about two-and-a-half years of pay. So, these are issues that must be tackled."
The Government has welcomed the recommendations.
The 2018 Budget, released in May, introduced a new 3 per cent cap on fees for funds with low balances.
Exit fees for customers closing accounts were also banned.
Prime Minister Malcolm Turnbull has told parliament the Government is committed to change.
“We're also ensuring that we're cracking down on costly and unfair fees and charges on superannuation accounts. And, Mr Speaker, we are banning exit fees for anyone who simply wants to change their funds. That's costing Australians around $52 million a year at the moment. We're introducing a 3 per cent cap on administration fees on accounts with a balance of $6,000 or less."
The report was also concerned about so-called zombie insurance accounts, where holders have cover across multiple funds, often without their consent.
Annie King, a 25-year-old from Sydney, says she never consented to being signed up to an insurance policy for which she was paying several hundred dollars a year in a lost account.
She is one of the lucky ones, finding out early she had been signed up to a policy without her consent.
Ms King is urging other young people to take closer looks at their accounts.
"It's so important for young people. A lot of the procedures and processes involved with superannuation are not transparent, and young people can be signed up to several different super accounts from a really young age, during their teen years, when they're working casually, they're not understanding their entitlements and things like that. So it's really important that there are better processes and procedures in place."
Many employees currently are assigned poor-performing default funds when they start new jobs.
That can leave the average worker with almost 40 per cent less to spend in retirement.
Ms O’Dwyer says the recommendation of an independent organisation to pick the 10 higher-performing default funds was a clever solution.
She insists she does not care whether they were union-backed industry funds or retail funds offered by financial-services companies.
But Industry Super Australia chief executive David Whiteley says he disagrees, suggesting forcing workers to choose from a small, preselected default system of funds would not work.
He says many people, especially young workers, may lack the knowledge or maturity to make such choices.
"Industry Super Funds are absolutely supportive of any measures that can reduce the number of multiple accounts. And we've been putting forward proposals to the government and the Productivity Commission now for five years, so we're pleased there is some action there. But what the Productivity Commission is proposing is that young workers be forced to choose their own fund out of a short list and could keep that fund for the rest of their working lives. In effect, the proposal is that teenagers are making decisions about their retirement."
Labor has welcomed the report but says the Government needs to do more to ensure companies that have not paid superannuation are held accountable.
