July 5 (Bloomberg) -- Australia’s pension industry will need to compete for a smaller fee pool if lawmakers implement a new standardized fund recommended by a government-commissioned review, Superannuation Minister Chris Bowen said.
The new option, called MySuper, may cut fees savers pay to asset managers by 40 percent, helping the average worker retire with an extra A$40,000 ($33,700), according to the study of the A$1.1 trillion pension system overseen by Jeremy Cooper, former deputy chairman of Australia’s markets regulator.
“Fund managers will need to keep their pencils very sharp,” Bowen said in Canberra today about competition for a reduced fee pool. The government will respond to the review proposals in the next two months, he said.
Australia’s current pension system is too expensive, complex and doesn’t always put member interests first, according to today’s report. The nation’s workers will have A$6.1 trillion in pension savings plans by 2035, from A$1.1 trillion last July, it said. MySuper’s introduction may lift fund balances at retirement by 7 percent, according to the document.
AMP Ltd. and Commonwealth Bank of Australia’s Colonial First State unit manage the two largest pension funds, according to data from the Australian Prudential Regulatory Authority, as of June 2009.
The Treasury estimates long-term savings of about A$2.7 billion per year from MySuper, along with more efficient back-office operations, according to the Cooper report.
‘Disengagement and Disinterest’
“The MySuper proposal is overly paternalistic and will entrench disengagement and disinterest,” industry body the Investment & Financial Services Association said in a statement today. “If the purpose of MySuper is to deliver inexpensive, consumer friendly super, it already exists.”
Australian employers make compulsory pension fund contributions of 9 percent of each worker’s salary. That will increase to 12 percent by fiscal 2020, Treasurer Wayne Swan said May 2.
As much as 25 percent of Australia’s population will be aged 65 or older by 2056, according to the statistics bureau.
To contact the reporter on this story: Sarah McDonald in Sydney at firstname.lastname@example.org.
To contact the editor responsible for this story: Will McSheehy at email@example.com.