Australia's superannuation system best, but not fairest

IN MOST developed countries social issues, such as aging populations, increased longevity, a decreasing birth rate, limited tax revenue, disagreement on raising taxes - not to mention the impact of the global financial crisis (GFC) - have placed considerable pressure on welfare systems.

In the face of these social issues, superannuation schemes are believed to be the most viable solution to not only ensure retirees' lifestyles, but also to minimise the financial burden on national budgets.

With a market capitalisation of over $AUD1.84 trillion the Australian superannuation industry is the fourth largest pension system in the world, exceeding Australia's national GDP.

The Australian superannuation system also enables more allocation of funds into productive sectors of the economy (eg schools, hospitals, infrastructure, etc). Superannuation, therefore, is regarded as the backbone of Australia's social policy scheme and a primary driver of economic growth.

However, individuals who lack financial prowess and are disengaged due to system complexity may miss out on the financial benefits that superannuation has to offer. This may help explain why more than 80% of Australian superannuation members allow their employers to choose investment strategies for their own retirement.

Fund management fees and performance have also been placed in the spotlight in recent times.

With an average expense ratio of 2.31%, Australian superannuation funds' management fees exceed US mutual funds by approximately 1.73%.

Further, in the aftermath of the GFC, fund managers have faced increased scrutiny over their performance and whether they act in the best interests of their members.

In recognition of these issues, and hoping to boost competition within the superannuation industry and increase investment awareness, the government introduced a simple, cost-effective and balanced product called MySuper in early 2013.

The effectiveness of this initiative is yet to be seen. While MySuper may decrease management costs and promote diversification, it fails to address gender inequality.

For instance, women, particularly baby boomers born between 1950 and 1960, have spent approximately 35% less time in paid employment compared to male baby boomers due to child care; thus, significantly reducing the amount of superannuation they will have access to upon retirement.

Australia may arguably have one of the best retirement systems in the world but there are still notable issues which need to be addressed.

* Panha Hend is a PhD Candidate (Finance) at the Southern Cross University's Southern Cross Business School.

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