Last week The Productivity Commission released its draft report into superannuation highlighting major flaws in the superannuation system.

Sweeping changes have been recommended with the report highlighting key failings that are costing super fund members nearly $4 billion a year.

The Commission’s Inquiry, set up by the federal government as part of its response to the Financial System Inquiry, has named multiple super accounts and underperforming funds as the key reasons why super fund members are losing out.

The changes that have been recommended could really shake up the super industry, bringing it into the modern era with greater innovation, effectiveness and competition to ultimately ensure a better outcome for Australians saving for retirement.

A key recommendation for tackling the problem is the setting up of an expert panel which would select the 10 best-performing no-frills super products to act as defaults for employees when they first enter the workforce. Alongside this is the suggestion that obliging employers to choose a default fund for their contributions creates a conflict of interest and that this mechanism should be scrapped.

The Commission believes the ‘Best in Class’ list will provide safe choices for employees, separate the system from workplace relations and provide a benchmark that would increase quality and value-for-money across the industry. Funds would be required to hire more independent directors in order to qualify for the list and international funds could compete with local ones.

Workers would remain with one fund for life unless they chose to switch, eliminating one of the most damaging aspects of the current system; multiple accounts. The report estimates that as many as one-third of accounts in the system fall into this category, meaning members are losing $2.6 billion a year in duplicate fees and insurance.

The current MySuper system was supposed to provide cost-effective and simple products for employers to choose from but the Commission found that 1.7 million accounts worth $62 billion are in MySuper products which display “serial underperformance”. The report says that funnelling workers into a default top-performing fund would mean a 55-year-old could be $61,000 better off by retirement while a new entrant today would gain $407,000 by 2064.

The draft report was released as part of the third stage of the Commission’s Inquiry into the competitiveness and efficiency of the super system, and is currently open for feedback.

You can have your say here, with submissions open until Friday 13 July, 2018.