Superannuation

How to assess the superannuation system's performance

The Productivity Commission has finalised its comprehensive framework to assess the efficiency and competitiveness of Australia's $2 trillion superannuation system.

The superannuation system is large, complex and has broad reach. This means even small system improvements can offer significant financial benefits to Australian workers, particularly in their retirement.

'This framework will allow us to assess how well our super system is able to meet its primary purpose of providing retirement income. The Commission's focus is on the whole system.

This is not about comparing the performance of individual super funds or products,' Commissioner Angela MacRae said.

With the release of this final report, the Commission has completed the first of three stages of superannuation work.

'This first stage provides transparency and certainty to the superannuation industry about how it will ultimately be assessed in our forthcoming review of the system's efficiency and competitiveness,' Productivity Commission Deputy Chair, Karen Chester said.

The Australian Government has stated that the Productivity Commission will be asked to undertake this system-wide review following the full implementation of the MySuper reforms (after 1 July 2017).

'Undertaking a system-wide assessment of the competitiveness and efficiency of our super system is complex and novel — it has not been done before. Our assessment framework is comprehensive to capture this complexity,' Karen Chester said.

The assessment framework has also benefited from the expertise of study participants commenting on the draft report. The Commission's assessment framework comprises 5 system-level objectives, 22 corresponding assessment criteria, and a suite of supporting performance indicators.

The majority of the indicators rely on data that already exists in some form. The framework has been designed, among other things, to minimise the compliance burden on industry.

The system-level objectives for superannuation identified by the Commission are specific to competition and efficiency and revolve around the best interests of members. This includes maximising long-term net returns, meeting member needs, providing value-for-money insurance and improving efficiency over time.

'Competition is not an end in itself. It will be assessed in terms of the benefits it can deliver for members', said Angela MacRae.

The final report can be found at the Productivity Commission's website at www.pc.gov.au/inquiries/current/superannuation.

This report consists of an executive summary, seven chapters, and seven appendices.

Chapter 1 provides relevant background to the study.

Chapter 2 dissects the characteristics of the superannuation system that are pertinent to the assessment framework.

Chapter 3 details the assessment framework guiding the study.

Chapter 4 contains the system–level objectives that the Commission has used as a reference point by which to guide criteria and indicators.

Chapters 5 and 6 contain the criteria and indicators the Commission has developed to assess the competitiveness and efficiency of the superannuation system.

Chapter 7 summarises the evidence base that will be required to facilitate the eventual assessment in stage 3.

Appendix A contains material on submissions and consultation processes.

Appendix B examines the literature on member decision making and Australians' superannuation knowledge and behaviour.

Appendix C analyses corporate tendering for default superannuation contributions and what it can reveal about the competitiveness of the system.

Appendix D assesses the state of the market for retirement income products.

Appendix E considers the key lessons from international experiences and comparisons. Appendix F discusses the impact of the superannuation system on overall financial stability.

Appendix G outlines how the trends in the SMSF sector will be factored into the Commission's assessment.

Finally, Appendix H describes the system's regulatory environment and how it may impact on competition and efficiency.