Should under 25s be treated differently on super?

PC Production Commission superannuation system superannuation funds

16 November 2016
| By Mike |
image
image
expand image

The Productivity Commission (PC) has been told that workers aged under 25 may be better off going into a Government-run default superannuation fund within which they are offered no insurance cover capable of eroding their balance.

Actuarial consultancy, Rice Warner has told the PC inquiry into alternative default models that in circumstances where almost all young people have little interest in retirement, their superannuation guarantee (SG) contributions might be better directed to an agency such as the Australian Taxation Office (ATO) and invested on their behalf with an entity such as the Future Fund.

It said their contributions could be invested in a growth portfolio to give higher returns and that there should be no insurance benefits.

The preamble to the Rice Warner submission argued that "young people are unengaged and many don't get value from their superannuation".

"Their life insurance may also be of little value to many of them. Lack of engagement means younger members are especially likely to remain in the default investment and insurance options of their default fund, even if their specific needs would be better served by selecting different options," it said.

Under the scenario suggested to the PC by Rice Warner, workers aged under 25 would be able to opt out of the default option and into a superannuation of their choice at any time, and those who reached age 25 would be required to make a superannuation fund selection and those who did not would be placed in an employer's default fund.

Rice Warner acknowledged that such a regime might harm some funds which attract large numbers of young members such as HOSTPLUS and REST.

"However, there is large turnover of these young members and holding large numbers of small accounts from unengaged members is not efficient for fund, administrator and member alike. These funds and others which attract young members would still gain engaged members under Choice and be allocated large numbers of members when they turn age 25," the submission said.

Elsewhere in its submission, Rice Warner argued that there were too many superannuation funds which provide similar MySuper products with little differentiation and that many were actually relatively inefficient.

"There is no mechanism for identifying and then winding up an inefficient fund," it said.

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

This verdict highlights something deeply wrong and rotten at the heart of the FSCP. We are witnessing a heavy-handed, op...

2 days 13 hours ago

Interesting. Would be good to know the details of the StrategyOne deal....

6 days 19 hours ago

It’s astonishing to see the FAAA now pushing for more advisers by courting "career changers" and international recruits,...

3 weeks 4 days ago

Insignia Financial has made four appointments, including three who have joined from TAL, to lead strategy and innovation in its retirement solutions for the MLC brand....

2 weeks 6 days ago

A former Brisbane financial adviser has been charged with 26 counts of dishonest conduct regarding a failure to disclose he would receive substantial commission payments ...

5 days 17 hours ago

Pinnacle Investment Management has announced it will acquire strategic interests in two international fund managers for $142 million....

4 days 20 hours ago