Super system cost focus unwarranted
The Financial System Inquiry's (FSI) view the Australian superannuation system is too expensive and inefficient is a misconception and should not guide policy, a law firm believes.
Herbert Smith Freehills (HSF) contends the FSI's view, which is based on its analysis, is limited.
While HSF does not dispute that the system could be improved and costs could be reduced, it said more "granular research" is needed to understand how that should be done before any policy decisions are taken.
The comments come on the back of the ‘Grattan Report: Super sting: How to stop Australians paying too much for superannuation', a view that was reflected in the FSI's interim report.
The law firm made a submission to the FSI, arguing that comparing the Australian system with international counterparts must take into account Australia's policy settings such as compulsion, preservation, portability and the dependence on disclosure as a regulatory device.
It said these aspects are intrinsic to the system and not a result of inefficient implementation.
The law firm also believes there should be a focus on whether participants take out economic rent, instead of cost.
"Rent is the concept used by economists to describe the quantum of profit above that required to compensate for the risk undertaken," the law firm said.
Moreover, measures such as MySuper and Superstream, reducing embedded service agreements and raising regulatory effectiveness already promote efficiency in the system, HSF partner Michael Vrisakis said.
"The question of efficiency is too important to put in the too-hard basket. Equally, though, the importance of the question does not mean that changes are urgently required," Vrisakis said.
AUTHOR
Malavika Santhebennur
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