The Productivity Commission has handed the federal government its final report into reforming the 2-point-8 trillion dollar superannuation sector.
The major recommendations are to revoke the licences of super funds that consistently under-perform and give employees a list of the 10 best-performing super funds to choose from when they start working.
It also suggests only giving new entrants to the workforce a default super account.
The Treasurer Josh Frydenberg says the report does expose flaws in the system.
"While the superannuation system is performing reasonably well, there are significant issues that need to be addressed. High fees, multiple accounts, chronic underperformance by some funds, and a lack of competition in the default system."))
The Productivity Commission says if its recommendations are adopted, some Australians would see their super balances increase by 500,000 dollars at retirement.
Even middle-aged Australians could see their super increase by nearly 100,000 dollars.
The government won't make its final response to the report until another major inquiry finishes.
"The Government will carefully consider its findings in this thousand-page report, and will await the final report from the banking royal commission, which has also looked at the performance, particularly the conduct, of future funds."
About 15-million Australians contribute to more than 200 major super funds.
And there are thousands more smaller funds with fewer than five members.
The system requires employers to make compulsory contributions of 9-point-5 per cent on behalf of the employee and that will slowly increase over the next decade.
Shadow Treasurer Chris Bowen says while super funds are entitled to have years where they under-perform, it is fair to pressure them to do better for their members.
"If it is consistently underperforming, it needs to have a good look at itself. And, if necessary, to take whatever action is necessary to improve its performance, including considering closing down and merging with a better-performing fund."
But Labor is also reluctant to support a top ten list of funds.
Chris Bowen says it could force super funds into safer investment strategies, rather than potentially more profitable aggressive ones.
(("You know, if you have a tick-a-box approach to try and get into these top ten funds and you are manipulating your decision to become one of those top ten funds, which might not be in the better long-term interests of the members, I think that is an issue and a concern which should be very, very carefully considered."))
This would differ from the current practice of some Australians being placed into new funds each time they start with a new employer.
The Chief Executive Officer of the Australian Institute of Superannuation Trustees, Eva Scheerlinck ((SHEER-link)), says it would confine many Australians.
"When you get your first job at sixteen, you know, working at the local supermarket or your local cafe, that is not the time, the best time in your life, to be making significant decisions about your financial security and retirement."
