David Murray, chairman of the financial system inquiry, notes in his interim report that there is scope for greater efficiencies in the super system.
The first review of the financial system since 1997 may result in lower superannuation fund fees and slow the erosion of retirement nest eggs.
At a time when financial advisers and the Commonwealth Bank are under a cloud, the head of the financial system inquiry says confidence has been central to his review panel’s work.
David Murray, a former boss of CBA, handed down his interim report on Tuesday, a large proportion of which was dedicated to the superannuation industry.
A major development since the 1997 Wallis inquiry has been the rapid expansion of the super savings pool – from about $300 billion to $1.8 trillion today.
It is projected to reach a massive $6 trillion in 2030.
In a series of observations – rather than firm recommendations at this stage – the review says there is scope for greater efficiencies in the super system, where fees appear high by international standards.
It says Australia’s super sector has some of the highest operating costs among OECD countries and the decline in fees over the past decade have been modest.
“We knew we would have to put on our crash helmets and flak jackets on when we looked at this,” Mr Murray told the National Press Club in Canberra.
His review says super government policy settings lack stability, which add to costs and reduces long-term confidence and trust in the system.
It believes the retirement phase of superannuation is also underdeveloped.
While compulsory super payments are guided to default accounts for workers that are less engaged in the system, on retirement people have to make critical decisions regarding when and how to draw down their savings for the remainder of their lives.
“Many retirees are unprepared for these decisions,” the 460-page report says.
More broadly, the review finds the overall financial sector has performed reasonably well and many of its elements don’t require substantial change.
But it also warns there is no room for complacency.
The review believes Australia’s banking sector is competitive, albeit concentrated.
It concedes the big four banks have funding advantages because of their size, and notes some submissions to the review argued they also benefit from the perception that they are “too big to fail”.
“It is not possible to rule out the risk of failure nor is it possible to rule out the use of taxpayers funds in extreme circumstances,” Mr Murray said.
But the report does not agree in providing a government guarantee to all banks should they fall on tough times because that would expose taxpayers to a significant liability.
And neither does it back the idea of charging the big four banks for a perceived implicit guarantee as some submissions to the inquiry put forward.
Instead, it suggests increasing the capital requirements for large financial institutions, strengthening regulatory powers and investing more in pre-planning and pre-positioning for financial failure.
The inquiry’s final report and recommendations will be released in November.