Peter Costello slams spoilt brats and Nick Sherry criticises complexity in the super system

Updated

A day after Australia's superannuation industry was voted second best in the world behind Denmark, it has been given a savaging by two former government ministers.

Former treasurer and current Future Fund chairman Peter Costello has accused the industry of self interest and acting like spoilt brats, while former Labor superannuation minister Nick Sherry has written that Australia's retirement savings system is the world's most complex.

Speaking at a superannuation industry conference that was billed as a day of confrontation, Mr Costello did not disappoint.

"Some of the spokesmen for the industry show all the self awareness of spoilt brats. 'Give us more money to manage'. Well who wouldn't like more money to manage? It's not going to cut it," he told the audience.

More money under management means more fees, and Australians are paying $20 billion a year in fees, in the process making superannuation industry participants very rich.

"The superannuation industry is not about me, the provider. It's not about me as a trustee. It's not about me as a fund manager. It's about the people for whom this industry exists," Mr Costello argued.

Mostly the returns in the industry follow the equity market. Future Fund chairman Peter Costello

He said the millions of Australians who give the super industry 9.5 per cent of their salaries are generally not impressed with the sector.

Despite paying themselves very highly, Mr Costello questioned what value is being added by those who control the near $2 trillion super pool.

"Mostly the returns in the industry follow the equity market," he observed.

"I don't have time to argue this but, you know, we've had two good years of returns because the equity markets were up, we've had two bad years when they were down."

'World's most complex system'

Former superannuation minister in the Rudd Labor government, Nick Sherry, has also criticised the sector for its complexity.

"Australia has the most complex defined contribution system in the world, both pre and post-retirement," he observed.

If contributions are inadequate, why is insurance ... appropriate in super? It diverts resources from retirement income. Former superannuation minister Nick Sherry

Writing for online financial publication Cuffelinks, Mr Sherry argued that complexity adds to the cost of superannuation, often without benefitting the majority of savers.

While praising the strengths of Australia's system - such as compulsory contributions, firm regulatory oversight, diversified arms-length investment, and independent trustee governance - Mr Sherry said the wide range of electable options makes the system unwieldy and costly.

In particular, he cited disability and unemployment insurance, consolidation of funds, estate rules, salary sacrifice and early retirement arrangements as adding unnecessarily to complexity.

Mr Sherry said insurance within super is a key area that is ripe for reform.

"If contributions are inadequate, why is insurance – particularly disablement and salary continuance – appropriate in super? It diverts resources from retirement income," he argued.

Mr Sherry also noted the inconsistency of existing 'transition to retirement' provisions which are available from age 55, even though the pension age is set to rise from 65 to 70.

'Why should super get preferential treatment?'

Peter Costello thinks the chase for money is blinding the superannuation industry to its weak spots.

"It's not just about contributions anymore - it's an argument about governance, and it's an argument about retirement benefits, and it's an argument about why this should get preferential treatment in preference to something else," he warned the superannuation professionals at the conference.

Unless the industry lifts its game, and returns for retirement savers, Mr Costello fears its privileged position in the financial landscape is under threat.

"This is a very competitive world and governments which are short of money are looking everywhere," he said.

Coming from a man with friends in high places, that is an ominous warning that should put the superannuation industry on notice.

Topics: superannuation, australia

First posted