Efficiency

The efficiency of the superannuation system can be explored in a number of ways. This chapter examines both its operational efficiency — that is, the costs of the system and the after-fee returns it delivers to members — and the extent to which funds are invested to meet members’ needs over their lifecycle.

Large superannuation funds generally hold diversified and professionally managed portfolios of assets. As superannuation funds are a large part of the financial system, the system’s operational efficiency has important implications for productivity in the broader economy.

Preliminary assessment

Observation

There is little evidence of strong fee-based competition in the superannuation sector, and operating costs and fees appear high by international standards. This indicates there is scope for greater efficiencies in the superannuation system.

The operating costs of Australia’s superannuation funds are among the highest in the Organisation for Economic Co-operation and Development (OECD), and the Super System Review concluded superannuation fees were “too high”.17, 18 The Grattan Institute estimates fees have consumed more than a quarter of returns since 2004.19 Although the Inquiry notes the difficulties of comparing costs or fees across funds, especially internationally, the evidence suggests there is scope to reduce costs and improve after-fee returns (see Chart 4.1). The Inquiry is investigating the costs and fees of the system further.

Chart 4.1: International comparison of superannuation (pension) expenses

Annual expenses, as a percentage of funds under management (FUM)

This chart shows Australia's superannuation system, which is a predominantly 'defined contribution' system, having relatively high annual superannuation expenses as a percentage of funds under management, than other pension systems of similar scale (predominantly 'defined benefit' systems). A significant number of other pension systems are much smaller than Australia's and have lower operating expenses.

Source: Grattan Institute.20,21

Fees can significantly affect retirement incomes. The Super System Review found that reducing fees by around 40 per cent — or 38 basis points22 — for the average member would increase their superannuation balance at retirement by approximately $40,000 (or 7 per cent).23

Fees are also important for the amount of funds available for long-term capital formation. As a guide, a 38 basis point reduction in average fees for the entire superannuation sector would deliver a total saving to members, and additional funds to invest, of around $7 billion per annum.

That said, fees should not be considered in isolation. It is important that a focus on fees alone does not result in a shift towards lower-cost and lower-return asset allocations that would reduce after-fee returns. Ultimately, superannuation funds should be judged on their after-fee return for a given risk profile.

These issues are not unique to Australia. According to the Squam Lake Working Group, which is a distinguished group of academics:

High-fee funds argue that their fees are justified by superior performance. A large body of academic research challenges that argument. On average, high fees are simply a net drain to investors.24

Costs, fees and competition

Submissions and other reports identify a range of reasons for high superannuation costs, and hence fees, in Australia.

Asset allocation

Compared to those in other countries, Australian funds hold more growth assets.25 They also invest in alternative asset classes, such as private equity and other unlisted investments. These assets tend to be more expensive to manage, but they are also expected to deliver higher after-fee returns for members.

Economies of scale

Although Australia’s superannuation sector is large by international standards and has undergone some consolidation, it remains highly fragmented. There are 299 large APRA-regulated funds and more than 530,000 small funds, which are predominantly SMSFs.26 The fragmentation is exacerbated by many members having more than one superannuation account.

The Super System Review found that fees had not fallen in line with what could have been expected given the substantial increase in scale (Chart 4.2).27 This issue is acknowledged in the Industry Super Australia submission:

This increasing level of economies of scale, coupled with technological advancement and efficiency dividends, should have resulted in a notable fall in the level of fees. This has not been the case.28

Chart 4.2: Superannuation fund size and average fees

This chart shows the rapid growth in the average fund size, from $0.13 billion in 2002 to over $3 billion in 2013, and a disproportionate reduction in average fees, from 1.47 per cent to 1.2 per cent, over the same period

Note: Average fee data excludes small funds.

Source: APRA29 and Rice Warner.30

Rice Warner estimated that fees fell by around 25 basis points between 2002 and 2013 but a number of offsetting factors have prevented fees from falling further. These include a shift towards investing in higher-cost asset classes, substantial growth in member engagement services and investment in modern administration platforms.31 The Grattan Institute found the benefits of increased scale over the past decade have been largely offset by higher fund expenses.32 It is unclear whether this has been translated into higher after-fee returns.

There is an opportunity for fees to fall significantly over time given the further expected increases in scale due to continuing superannuation fund consolidation and growth in superannuation assets.33 In work commissioned by the Actuaries Institute, Rice Warner predicts the number of funds (excluding small funds) will fall to around 180 over the next five years and adds: “It is conceivable that the number of funds in 30 years will be no more than 20”.34 Competition between superannuation funds is important for realising these potential fee reductions.

Given the current extent of industry fragmentation, the Inquiry does not have major concerns about the effect of further consolidation in the superannuation market on competition, as long as fees are reduced in line with fund costs. The Super System Review concluded that larger and more efficient funds would be able to lower administration fees.35 Several submissions note that countries with lower-cost schemes tend to have a smaller number of pension funds.

Competition

Superannuation funds compete to attract and retain members. Competition between funds for members has largely been conducted on a non-fee basis, which has led to feature-rich and more costly superannuation products.36 Stakeholders suggest the behaviours of three groups of consumers contributes to this result.

First, a majority of individuals are not actively engaged with the superannuation system and are not sensitive to the fees they are charged by their fund (Box 4.1).37 In some instances, complex investment structures and layers of investment fees can make it difficult for consumers to understand and compare fee structures across funds. Low rates of switching between large funds also contribute to the lack of fee competition.38 The Super System Review found “the model of member‐driven competition through ‘choice of fund’ … has struggled to deliver a competitive market that reduces costs for members”.39

Second, a minority of consumers, who are sensitive to fees and/or to after-fee returns, are able to access lower-fee products by ‘shopping around’. However, these actions have not exerted significant downward pressure on fees for the broader range of products available.40

Third, a large number of individuals have established SMSFs. APRA-regulated superannuation funds compete to retain members by offering product features that give individuals more choice and control. Members can access a broad range of products and services, some of which provide individuals with substantially more flexibility to tailor their investment allocation.

To address the lack of member-driven competition, the Super System Review recommended introducing a low-cost product — MySuper — to replace existing default funds. MySuper also introduces consistent disclosure requirements to address some of the issues listed in Box 4.1. A broader discussion about financial product disclosure is in the Consumer outcomes chapter.

Box 4.1: Why hasn’t competition delivered optimal outcomes already?

Failure to exercise choice: Often a member does not choose the fund to which they belong. New employees typically become a member of their employer’s default fund.

Lack of price awareness: Compulsory contributions do not come directly out of members’ pockets, nor do the fees and other costs charged by the fund — at least not until they retire. This makes people much less price aware and much less likely to make a decision based on price or cost.

Lack of interest: Members are often not engaged with their superannuation until closer to retirement, so will not be sufficiently interested to respond to competitive behaviour on the part of funds until that time — if at all.

Agency and structural issues: There are limited opportunities for member vigilance or incentives for agency vigilance to reduce prices.

Complexity: Superannuation is inherently complex, and many consumers do not feel confident making decisions about it.

Lack of comparability: Even if members are engaged, contestability is weak at consumer level. This is because of product complexity and the lack of information and transparency about fees and performance.

Frictions: Even if members are interested in switching funds, often the paperwork and other ‘frictions’ in changing funds become too big a disincentive and they give up.

Source: Super System Review.41

Superannuation funds also attract members by being the default fund for mandatory employer contributions. Funds compete to be the default fund for large corporates, while many modern awards prescribe the employer’s default fund. Submissions raise competition for default fund status in awards as a major issue. The selection of default funds in awards largely reflects precedent and is not subject to a competitive process. Several submissions propose expanding award eligibility to all approved MySuper products to increase competition between funds.

The costs of superannuation funds, and the features they offer to members, are affected by the degree of competition among those providing services to the funds. This includes fund managers competing for superannuation fund clients, fund managers competing for access to platforms, and platforms competing to attract advisers. A trend in the wealth management sector is towards more vertical integration. Although this can provide some benefits to members of superannuation funds, the degree of cross-selling of services may reduce competitive pressures and contribute to higher costs in the sector.

Effectiveness of MySuper and SuperStream

The Super System Review estimated that introducing MySuper and SuperStream would reduce superannuation fees for the average MySuper member by around 40 per cent (or 38 basis points) in the long run.42, 43

However, views on the likely effectiveness of these reforms to reduce costs and fees are mixed. Over the next few years, Rice Warner expects MySuper will cause average annual fees across the sector to converge to 1 per cent of assets from 1.12 per cent in 2012–13.44 In contrast, the Grattan Institute argues MySuper will do little to force fees down. It also contends that, although SuperStream will reduce some costs, it will not address the costs of marketing, sales or asset management.45 On balance, the Inquiry considers it too early to assess whether these reforms will achieve their objectives.

Regulation and insurance

Several submissions highlight the costs of regulation in reducing member returns. Mercer and the Association of Superannuation Funds of Australia (ASFA) cite the costs of complying with legislation, which Mercer notes “are inevitably passed on to the members”.46, 47 Mercer also suggests that disclosure requirements, which put too much emphasis on fees, encourage trustees to adopt lower-cost investment strategies, which may not have high after-fee returns.48

Stakeholders also cite the direct costs to funds from developing MySuper products and getting approval from APRA and the Fair Work Commission for listing them in modern awards. These costs are passed on to MySuper members through higher fees. Implementing SuperStream also has costs, such as investing in modern administration platforms. However, since this aims to remove inefficiencies, such as manual data processing, funds can expect to recoup these costs over time. The costs of prudential regulation are discussed further in the Regulatory architecture chapter.

One submission also notes that fees charged for insurance within superannuation funds could reduce retirement savings. However, superannuation funds (excluding SMSFs) generally provide low-cost and sometimes tax-advantaged access to life, disability and income protection insurance, which provides net benefits to a broad range of people.

Trust law forms the basis for the governance of superannuation. The Inquiry seeks views on whether the trust structure is best placed to meet the needs of all members in a cost-effective manner.

Member investment switching

Member investment switching contributes to higher fees and may be inefficient when not properly priced by funds.

Many funds allow members to change their investment allocation frequently, often at short notice and generally at low or no cost to the member. Although member engagement should be encouraged, this behaviour can add to fund costs due to the need to rebalance investment allocations in the short term. It can also affect member returns by increasing the need for funds to hold liquid assets. The demand for liquidity is discussed below.

Member investment switching can also result in a majority of fund members subsidising the cost of investment switches by a minority. This occurs where funds do not charge members the full cost of investment switching or as a result of timing lags on asset valuations.

Active investment management

Some submissions argue active investment strategies contribute to superannuation fund costs and fees. This is discussed in detail below.

Short-termism

Some submissions question whether a trend towards chasing short-term returns is affecting asset allocations and contributing to lower after-fee returns in Australia.

The attention paid to quarterly superannuation return ‘league tables’, particularly by the industry itself, is cited by stakeholders as one explanation for superannuation funds targeting short-term returns and employing active asset managers. Understandably, funds and fund managers want to perform well relative to their peers for competitive reasons.

However, the publication of short-term returns is less useful for members as an indicator of future fund performance. According to the Squam Lake Working Group:

A large body of research finds that past returns in general, and short-term returns in particular, are almost useless in forecasting subsequent investment performance.49

Stakeholders also raise concerns that short-term behaviour is likely to lead to a more homogenous asset allocation across funds.

The effect of short-term investment behaviour on long-term outcomes is unclear. The Squam Lake Working Group argues that short-term behaviour by some funds will create opportunities for others:

There seems enough evidence to support a case that the balance is tilted at least a little too far towards the short-term, with potential adverse implications for market efficiency, volatility, corporate myopia and the efficiency of financial intermediation. However, to the extent that the balance is indeed tipped too far, this will create opportunities for those capable of adopting a longer horizon.50

Active investment management

Many funds adopt active management of superannuation assets in the pursuit of higher returns. Active management can often involve frequent adjustment to the investment portfolio in an attempt to outperform the market, particularly over shorter horizons. However, the costs of active management, including transaction costs and management fees, are widely acknowledged:

High turnover is also a drag on average returns because it creates high transactions costs.51

According to the Grattan Institute, active management of superannuation assets increases costs but not after-fee average returns in the sector.52 It is very difficult for the superannuation system as a whole to beat the market over the long run within an asset class, although it is possible for an individual fund to do so. As Nobel Laureate William Sharpe noted:

Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs.53

Rice Warner estimates fee differences of around 45 basis points between those MySuper funds for which less than 25 per cent of the portfolio is actively managed and those for which more than 75 per cent of the portfolio is actively managed.54 That said, some of these fee differences may be explained by differences in asset allocation.

Rice Warner also presents evidence that some smaller industry funds have increased their proportion of passively managed assets to reduce costs and notes that retail funds have designed a range of MySuper products with significantly different levels of active management.55

Lifecycle investment

The time horizon of superannuation fund investments could be better tailored to individual members.

A well-functioning and efficient superannuation system would be expected to invest to maximise returns over a horizon that reflects the demographics of its members. This approach would not only benefit members but may also improve the funding of long-term capital formation.

Anecdotal evidence suggests a trend towards a ‘lifecycle investment’ approach in MySuper products; under this approach, funds are heavily invested in growth assets for younger members and invested more defensively as a member advances in age. This approach would reduce the risk of substantial falls in superannuation balances for people close to retirement, which occurred during the GFC. Superannuation funds have more information about their members than their age, including gender, contribution patterns and superannuation balance. There may be benefits in tailoring asset allocation to members by asking members for more information, including about their retirement goals and risk preferences.

The current focus of large superannuation funds is on maximising the balance at the point of retirement. DFA Australia (Dimensional) argues the focus should be on maximising income in retirement: “Sustainable income flow, not the stock of wealth, is the objective that counts for retirement planning”.56This would involve a fundamental change to the approach to asset management.

For example, the value of an inflation-indexed bond, if viewed as an asset to be marked to market every day, can be very volatile. In contrast, if viewed as a source of regular income, it provides stable inflation-protected cash flows for its life. For assets that are expected to be held to maturity, the book value may be a more appropriate measure of the asset value to members.

The current focus on lump sum balances is evident from the absence of retirement income projections from annual statements sent to members. For many people, income projections, while difficult to calculate, would be far more useful than total accrued balances.

The Inquiry is interested in views and evidence on whether funds are excessively focused on delivering short-term returns, whether this is a significant issue, how it could be addressed, and to what extent more tailoring of asset allocation to members would produce net benefits for members.

Liquidity management

A number of submissions highlight the demand for liquid assets by superannuation funds as a major issue for this Inquiry. The GFC tested the liquidity management of funds, which, along with the subsequent introduction of prudential standards, has raised superannuation funds’ awareness of the need for better liquidity management frameworks.

All funds need liquidity to deal with a range of scenarios. However, if superannuation funds hold more liquid assets than needed, this may lower after-fee returns to members.

The major drivers of the demand for liquid assets by superannuation funds are:

  • The need to make benefit payments — demand for more liquid assets will increase over time as more members retire with larger balances and the ratio of inflows to outflows falls. Currently, inflows are substantially larger than outflows. However, this change is largely predictable. Superannuation funds should be able to adjust their asset portfolios accordingly.
  • The portability of superannuation benefits between funds — demand for liquidity is higher because of the requirement for funds to action member requests to transfer their benefits to another fund within three business days, although this is extendable to up to 90 days in some circumstances. Funds must therefore provision for significant member movement despite the low risk of this occurring. Given that inter-fund transfers remain in the superannuation system, requiring each fund to provision for member movements results in the sector collectively holding more liquid assets than it needs. Funds can apply to APRA to extend the time period for portability. However, funds may be concerned about the reputational consequences from making such a request.
  • The need to maintain target asset allocations within a fund — when asset allocations fall outside a superannuation fund’s internally set target ranges, the portfolio needs to be rebalanced. Superannuation funds should allow themselves sufficient time to rebalance assets, in part through member contributions, over a time horizon that is in the best interests of members.
  • The need to cover margins on currency hedging positions — superannuation funds invest in international assets and seek to limit their exposure to currency fluctuations. ASFA notes that funds generally hedge half their international currency exposures.57 When the Australian dollar depreciates, funds are required to cover margin calls.
  • Member investment switching — as discussed above, when a member elects to change how their superannuation benefits are invested, funds need liquidity to adjust the member’s portfolio. However, the timing of this switching may not reflect the liquidity characteristics of the assets being bought and sold. Although only a small minority of superannuation members switch their investment allocation regularly, at times members will react concurrently and shift their asset allocation in the same direction. This was particularly evident during the GFC, when members increased allocations to more defensive assets.58 Given older members (with higher balances) are more likely to change their asset allocations than younger members, the need for liquidity to manage this risk may increase over time as the population ages.59

Policy options for consultation

A number of options for reducing fees and increasing after-fee returns are outlined below.

Fees

Competition and default funds

It is too early to assess the effectiveness of MySuper reforms in stimulating competition and improving after-fee returns for default fund members. MySuper only replaced default superannuation products for new accounts from 1 January 2014, and superannuation funds have until 1 July 2017 to transfer balances of members in existing default funds into a MySuper account. There has been a substantial cost to industry in establishing MySuper products.

The Productivity Commission recommends introducing more competition in relation to default employer contributions through changing awards.60 The Government is currently considering policy options on this issue.61

Other mechanisms could also be deployed to drive fees down. One example is the approach introduced in Chile in 2008, where — unlike Australia — superannuation contributions of all new members are placed in the same default fund. Default fund management is auctioned on the basis of fees, creating stronger competition between funds for default fund status. Since these arrangements started, the fees charged by successful bidders in Chile have fallen by 65 per cent, although fees on other funds have not fallen to the same degree.62 This policy option raises a number of other policy issues that would need to be considered before being contemplated for Australia, such as the number of default funds, concentration risk, asset allocation and regulation.

Member investment switching

Proper pricing of investment switching would result in more efficient outcomes for the sector and more equitable outcomes for members. Superannuation funds could be encouraged to price and schedule investment switching appropriately, so the costs of switching are not imposed on other members of the fund. The timing of an investment switch should reflect the benefits to all members of giving effect to investment switching after all assets of the fund have been revalued. NAB notes: “As highlighted by the GFC, funds which held illiquid assets and used infrequent crediting rates exposed members to intra-fund member arbitrage”.63

Liquidity

ASFA notes the need “to reassess the ways in which we require superannuation funds to manage liquidity risk, potentially exploring innovative solutions to this issue”.64

Liquidity facility

Some stakeholders argue for APRA-regulated superannuation funds to have access to a liquidity facility at the Reserve Bank of Australia (RBA). This facility would both provide superannuation funds with reliable access to liquidity during times of stress and increase their capacity to invest for the long term.

The Inquiry notes that to access the RBA liquidity facility, superannuation funds would need to hold repo-eligible assets, which tend to be highly liquid. It is therefore unclear how access to such a facility would reduce holdings of liquid assets by superannuation funds. The Inquiry also notes that superannuation funds can compete indirectly for liquidity at the RBA through an entity that already participates in the open market operations of the RBA, as long as the fund has eligible assets to exchange with this entity. Alternatively, superannuation funds can participate directly in open market operations by becoming a member of the Reserve Bank Information and Transfer System (RITS) and holding their liquid assets in Austraclear.

The Inquiry is not convinced that access to a liquidity facility at the RBA would overcome the concerns raised in submissions.

Portability requirements

Stakeholders note a longer maximum time period for portability transfers could be legislated. This could include allowing trustees to transfer member balances in stages, based on the liquidity characteristics of a member’s underlying asset allocation. A longer time frame would apply for illiquid assets compared to liquid assets. ASFA believes the relaxation of liquidity requirements could apply to “products that are mainly invested in by younger members with longer investment horizons”.65 Implementing a time-sequenced approach raises other issues. For example, members with assets split between two funds during the transfer period will potentially incur additional fees.

The regulator could also extend the maximum portability time period for the entire industry — as opposed to individual funds, which currently occurs — during times of financial stress. This could reduce the need for the sector as a whole to hold higher levels of liquidity for intra-sector transfers. It may also mitigate the reputational risk of individual funds applying for an extension of time to transfer funds.

A principles-based approach to portability transfers may be more effective than the current prescriptive approach. The Actuaries Institute believes principles-based regulation is better equipped than prescription-based regulation to respond to the broader societal changes occurring. Under a principles-based approach, superannuation funds could be required to make portability transfers in a timely and efficient manner and could report to the regulator on the time it takes to effect portability requests. The regulator could then deal with any funds that were not implementing requests in a timely manner. However, without an objective benchmark with which to judge the amount of time to complete a transfer to another superannuation fund, this approach may create more ambiguity for all parties involved, including the regulator.

There is a trade-off between the desire for greater competition in the superannuation sector and the desire for funds to be invested for the long term. However, there is little evidence that portability is currently generating competition between funds.

The Inquiry would value views on the costs, benefits and trade-offs of the following policy options or other alternatives:

  • No change to current arrangements and review the effectiveness of the MySuper regime in due course.
  • Consider additional mechanisms to MySuper to achieve better results for members, including auctions for default fund status.
  • Replace the three-day portability rule:
    • With a longer maximum time period or a staged transfer of members’ balances between funds, including expanding the regulator’s power to extend the maximum time period to the entire industry in times of stress.
    • By moving from the current prescription-based approach for portability of superannuation benefits to a principles-based approach.

 

The Inquiry seeks further information on the following areas:

  • Does, or will, MySuper provide sufficient competitive pressures to ensure future economies of scale will be reflected in higher after-fee returns? What are the costs and benefits of auctioning the management rights to default funds principally on the basis of fees for a given asset mix? Are there alternative options?
  • Is the recent trend of greater vertical integration in the wealth management and superannuation sectors reducing competitive pressures and contributing to higher superannuation fees? Are there mechanisms to ensure the efficiency of vertical integration flow through to consumers?
  • Are there net benefits in tailoring asset allocation to members and/or projecting retirement incomes on superannuation statements?
  • Is there an undue focus on short-term returns by superannuation funds? If this is a significant issue, how might it be addressed?
  • To what extent is there a trend away from active asset management within asset classes in superannuation funds? Is this a positive or negative development for members?
  • How could funds price switching properly and take into account differences in liquidity between asset classes?
  • Could other arrangements be developed to facilitate asset transfers between funds when members switch? Do funds require additional mechanisms to manage liquidity beyond the need for liquidity for portability and member investment switching?
  • Is the trust structure best placed to meet the needs of members in a cost-effective manner?

 


17 OECD 2013, Pensions at a Glance 2013: OECD and G20 Indicators, OECD Publishing, viewed 24 June 2014.

18 Commonwealth of Australia 2010, Super System Review Final Report, Part One, Overview and Recommendations, Commonwealth of Australia, Canberra, page 7.

19 Minifie, J, Cameron, T and Savage, J 2014, Super sting: how to stop Australians paying too much for superannuation, Grattan Institute, Victoria, page 9.

20 For the purpose of this chart, ‘defined benefit’ is a system where more than than 60 per cent of assets are in defined benefit plans; others are allocated to defined contribution.

21 Minifie, J, Cameron, T and Savage, J 2014, Super sting: how to stop Australians paying too much for superannuation, Grattan Institute, Victoria, page 6.

22 The figure of 38 basis points is based on the estimated reduction in superannuation fees for the average member from a combination of MySuper and SuperStream initiatives.

23 Commonwealth of Australia 2010, Super System Review Final Report, Part One, Overview and Recommendations, Commonwealth of Australia, Canberra. Based on Treasury estimates, assuming 37 years in the workforce.

24 Council on Foreign Relations 2009, Regulation of Retirement Saving, Working Paper, July, Squam Lake Working Group on Financial Regulation, New York, page 4.

25 OECD 2013, Pension Markets in Focus, OECD publishing, viewed 21 June 2014.

26 Australian Prudential Regulation Authority (APRA) 2014, Statistics: Quarterly Superannuation Performance (Interim Edition), March ed., APRA, Sydney.

27 Commonwealth of Australia 2010, Super System Review Final Report, Part One, Overview and Recommendations, Commonwealth of Australia, Canberra.

28 Industry Super Australia 2014, First round submission to the Financial System Inquiry, page 140.

29 Australian Prudential Regulation Authority (APRA) 2013, Annual Superannuation Bulletin, June ed., revised February 2014, APRA, Sydney.

30 Rice Warner 2014, data provided to Financial System Inquiry, 17 June 2014.

31 Rice Warner 2014, FSC Superannuation Fees Report 2013, commissioned by the Financial Services Council, Sydney.

32 Minifie, J, Cameron, T and Savage, J 2014, Super sting: how to stop Australians paying too much for superannuation, Grattan Institute, Victoria.

33 Rice Warner predicts assets will triple in real terms over the next three decades. Rice Warner 2014, Ageing and capital flows, research commissioned by the Actuaries Institute, Sydney, and provided to Financial System Inquiry, May 2014.

34 Ibid, page 9.

35 Commonwealth of Australia 2010, Super System Review Final Report, Part One, Overview and Recommendations, Commonwealth of Australia, Canberra.

36 The Grattan Institute attributes cost increases to strong competition between funds on non-price factors in a market where consumers may not be price sensitive. See Minifie, J, Cameron, T and Savage, J 2014, Super sting: how to stop Australians paying too much for superannuation, Grattan Institute, Victoria.

37 Minifie, J, Cameron, T and Savage, J 2014, Super sting: how to stop Australians paying too much for superannuation, Grattan Institute, Victoria.

38 A Roy Morgan Research report, based on approximately 30,000 interviews each year with members of superannuation funds, shows rates of switching between superannuation funds in the range of 2 to 5 per cent since 2005, when Super Choice legislation was introduced. Approximately 42 per cent of people moved to a new fund because they changed employers. Roy Morgan Research 2013, Superannuation and Wealth Management in Australia, Report, December 2013.

39 Commonwealth of Australia 2010, Super System Review Final Report, Part One, Overview and Recommendations, Commonwealth of Australia, Canberra, page 8.

40 Minifie, J, Cameron, T and Savage, J 2014, Super sting: how to stop Australians paying too much for superannuation, Grattan Institute, Victoria.

41 Commonwealth of Australia 2010, Super System Review Final Report, Part One, Overview and Recommendations, Commonwealth of Australia, Canberra, page 7.

42 Commonwealth of Australia 2010, Super System Review Final Report, Part One, Overview and Recommendations, Commonwealth of Australia, Canberra.

43 SuperStream is designed to improve administrative efficiency.

44 Rice Warner 2014, FSC Superannuation Fees Report 2013, commissioned by the Financial Services Council, Sydney.

45 Minifie, J, Cameron, T and Savage, J 2014, Super sting: how to stop Australians paying too much for superannuation, Grattan Institute, Victoria.

46 Mercer 2014, First round submission to the Financial System Inquiry, page 28.

47 Association of Superannuation Funds of Australia 2014, First round submission to the Financial System Inquiry.

48 Mercer 2014, First round submission to the Financial System Inquiry.

49 Council on Foreign Relations 2009, Regulation of Retirement Saving, Working Paper, Squam Lake Working Group on Financial Regulation, New York.

50 Warren, G 2014, Long-term investing: What determines investment horizon?, Centre for International Finance and Regulation Research Working Paper No. 024/2014.

51 Council on Foreign Relations 2009, Regulation of Retirement Saving, Working Paper, Squam Lake Working Group on Financial Regulation, New York.

52 Minifie, J, Cameron, T and Savage, J 2014, Super sting: how to stop Australians paying too much for superannuation, Grattan Institute, Victoria.

53 Sharpe, W F 1991, ‘The Arithmetic of Active Management’, The Financial Analysts’ Journal, Volume 47, No. 1, CFA Institute, USA, pages 7–9.

54 Rice Warner 2014, FSC Superannuation Fees Report 2013, commissioned by the Financial Services Council, Sydney,page 13.

55 Rice Warner 2014, FSC Superannuation Fees Report 2013, commissioned by the Financial Services Council, Sydney,page 13.

56 DFA Australia (Dimensional) 2014, First round submission to the Financial System Inquiry, page 16.

57 Association of Superannuation Funds of Australia 2014, First round submission to the Financial System Inquiry.

58 Industry Super Australia 2014, First round submission to the Financial System Inquiry.

59 Industry Super Australia 2014, First round submission to the Financial System Inquiry.

60 Productivity Commission 2012, Default Superannuation Funds in Modern Awards, Report No. 60, Final Inquiry Report,Productivity Commission.

61 For further detail, see the consultation paper released by the Government in November 2013, Better regulation and governance, enhanced transparency and improved competition in superannuation, Commonwealth of Australia, Canberra.

62 Berstein Jáuregui, S (ed) 2010, El Sistema Chileno de Pensiones, Superintendencia de Pensiones, Santiago .

63 NAB 2014, First round submission to the Financial System Inquiry, page 18.

64 Association of Superannuation Funds of Australia 2014, First round submission to the Financial System Inquiry, page 42.

65 Association of Superannuation Funds of Australia 2014, First round submission to the Financial System Inquiry, page 42.