For consumers, an overload of choice can lead to poor decision-making. In superannuation, there’s a glut of super funds, many of them bad value for money. The Productivity Commission found that having fewer super funds on offer would be in the best interests of consumers – for a range of reasons.
Analysis by Super Consumers Australia confirms this finding. Of the funds that merged between January 2018 and October 2020, fees fell 13.4% on average. Over the course of a working life, this reduction in fees would mean you retire with $14,830 more in your savings. That’s a substantial amount to add to your nest egg without having to work another day or save another dollar.
Over the past couple of years, the government has introduced a range of measures to encourage further fund mergers. The most powerful tool yet to drive this consolidation is the yearly performance test announced in the 2020 Federal Budget. The test will apply from 2021. Funds that fail two performance tests in a row will be banned from accepting any new members until they improve.
Super Consumers Australia director Xavier O’Halloran says this change will light a fire under struggling funds. “Being barred from adding members will force funds to shape up or merge,” he says. “Underperforming funds need to find a partner or get off the dancefloor.”
