Should under 25s be treated differently on super?
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.
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