It beggars belief Joe Hockey flagged letting young Aussies dip into their superannuation to buy their first house, given our super system is hardly balanced and the housing market is already overheated, writes Ian Verrender.

You could imagine it as a question in the Higher School Certificate or perhaps even a first year economics degree: Describe the major economic dangers confronting Australia a) right now, and b) four decades into the future.

If your answer to the first part mentioned distorted asset markets, particularly real estate, and to the second, the costs associated with supporting an ageing population, you'd be bang on the money and on your way to a decent mark.

So it was with some alarm that your diarist read reports on the weekend that the Treasurer, Joe Hockey, flagged the idea that young Australians should be allowed to dip into their superannuation to help fund the purchase of their first home.

His comments came just 36 hours after unveiling the latest Intergenerational Report, which delved into explicit detail about the costs involved in providing pensions to a much larger proportion of retired workers.

The report has been criticised by economists for its dodgy assumptions, conflicting claims with its own Parliamentary Budget Office and for its overtly partisan approach, focusing to a large extent on the 2014 budget rather than the challenges 40 years into the future.

But let's put that aside. And perhaps we should forget that climate change - considered in the 2010 Intergenerational Report as one of the great challenges facing the nation - has been consigned to barely a footnote in the latest report.

The one consistent theme that has run through each of these reports, starting with Peter Costello's effort in 2002, is that our pension system will be unable to support older Australians into the future, that the mounting costs of providing for a much larger proportion of retired workers will become unsustainable.

So what is the solution? According to Hockey's report, Australians will have to work longer and pension increases will be limited to inflation only.

Both are reasonable arguments. When the retirement age was first formulated, it was pretty much in line with our expected lifespan. Only a few could be expected to enjoy the twilight years before falling off the twig.

That's all changed. We live much longer and that's a trend likely to continue.

But how do you limit pension increases when the very proportion of those affected within the electorate will have increased voting power? That ain't going to be easy, at least not if you want to stay in power.

The glaring omission in the report, however, is on Australia's out of control superannuation industry and how it could best be marshalled to provide for the nation's future.

Given the Government's refusal to conduct an inquiry into the scandal-plagued sector, despite almost daily revelations of fraud and misconduct, the omission is hardly surprising.

Our pool of national savings has grown to more than $1.8 trillion. But the fees being gouged out of the system are obscene. It is a system designed for the benefit of those who manage the money rather than the beneficiaries.

"Wealth management" has become a booming industry for the nation's big banks and AMP. Not surprisingly.

Three years ago, research firm Rainmaker estimated more than $17 billion was skimmed off the top of the super pool in fees. That was in a year when about $135 billion flowed in from workers' salaries and when the total pool was about $1.4 trillion.

The following year, the fee grab jumped to $21.6 billion. Last year's haul is expected to be another motza.

According to the Grattan Institute, Australians pay among the highest fees in the developed world. Our money managers charge fees that are three times higher than the median for developed countries.

And the cost of running our funds has soared, even as the funds have expanded, for they simply charge a percentage of funds under management. That means the fee grab is enormous, even when performance is abysmal.

The investment focus is heavily oriented towards Australian stocks, rather than long-term investments. Performance is volatile and once the fees are deducted, the industry rarely even keeps pace with equity markets.

On top of that, many borrowers consider their superannuation as an asset when applying for loans, a practice major lenders do not condone but hardly discourage. So you retire, and you then use your super payout to repay the bank. Brilliant! So then what do you live on? The pension.

According to last week's Intergenerational Report, the proportion of Australians receiving the pension is not expected to decline 40 years from now. As Macrobusiness commentator Leith van Onselen laments: All that money, flowing in to a system for decades, for no result.

Even worse, the way the generous tax incentives work to encourage Australians to contribute above and beyond the compulsory payment, denudes the budget by almost the same amount as the pension.

An Australia Institute study last year found that super tax concessions - that overwhelmingly favour wealthy citizens and actually penalise lower income groups - cost the federal budget $35 billion in 2013/14. The pension cost $39 billion.

The superannuation system needs to be cleaned up. It needs to be policed. And it needs to provide for a rapidly ageing population.

But it is controlled by a handful of large and extraordinarily powerful institutions, which having discovered the riches that can be harvested from the superannuation pool also happen to be extraordinarily geared towards residential property.

As a nation, we have $1.4 trillion in mortgages, 80 per cent of which are held by the big four banks. Capital city property values already were among the world's most expensive two years ago, but have risen at an extraordinary pace.

To suggest that young Australians should be allowed to withdraw cash from a superannuation system that is hardly balanced so it can be invested in a market that has become completely distorted, beggars belief.

Freeing up that cash for property purchases would supercharge an already overheated market that would wipe out the savings of an entire generation in the event of a serious property market downturn.

Instead, the Government should be examining ways to choke off the extraordinarily generous tax loopholes that have helped fuel the property boom in the first place along with a complete shake-up of the superannuation system to make it fair and equitable and so it works to take the pressure off taxpayers in future.

Back in 2010, when in opposition, Joe Hockey accused former treasurer Wayne Swan of not having the bottle to take on the banks. Swan was weak and insipid, he taunted, and the banks were treating him like a fool.

Now is the time to shape up.

Ian Verrender is the ABC's business editor.