On December 14, the government-appointed Super System Review panel issued a preliminary report on governance of superannuation funds entitled Clearer Super Choices: Matching Governance Solutions. The panel was formed in May 2009 to examine the country's nearly 20-year-old superannuation system; it will release a preliminary report on operation and efficiency around March–April 2010 and another report on structure around April–May 2010. The final report on all three topics is due on June 30, 2010.The preliminary report on governance finds that the current "one-size-fits-all" regulatory infrastructure of the superannuation industry does not protect the interests of all members and may be too complex and too costly for certain groups. (A member is anyone with a superannuation account.) The panel suggests a shift away from this single model of fund governance to one that takes into account the different types of members, which include the following groups.

- Disconnected members: those who joined an employer-sponsored plan more than 2 years ago whose account has been inactive for the past 5 years. As of June 2008, the government reported 6.4 million of these so-called "lost accounts," representing about one in five of all superannuation accounts. The report suggests placing these disconnected members in a low-cost fund with a conservative investment strategy and the highest level of protection against loss. 

- Universal members: those who do not choose the type of investment fund for their superannuation account. Currently, some 90 percent of members do not make a choice. The report suggests that these individuals be in a fund with a single diversified investment strategy (such as life cycle) where the member is not required to make any choices. Fees would also be relatively low. 

- Choice members: those who actively choose their funds and type of investments. The report suggests that an appropriate fund for individuals in this group would offer a potentially unlimited menu of options for investment. Choice members would pay proportionately higher fees and assume substantial responsibility for their investment and fund choices.

Superannuation assets under management as of June 2009 equaled A$1.1 trillion (US$976 billion), with an average fund size of A$1.5 billion (US$1.3 billion). Most of the 447 superannuation funds in Australia are defined contribution plans with an average account balance of A$70,000 (US$62,153). The report projects that by 2025 the number of funds will decrease to 119; total assets under management will double; the average fund size will increase to A$11.7 billion (US$10.3 billion); and the average account balance will rise to A$105,000 (US$93,229). 

The full report is available online at http://www.supersystemreview.gov.au/content/downloads/clearer_super_choices/Clearer_super_choices.pdf.

This article was extracted from the United States Social Security Administration publication International Update, January 2010.

Source: Sources: "Superannuation Clearing House and the Lost Members Framework," Australian Treasury, 2008; "Australia," International Update, U.S. Social Security Administration, May 2009; "Clearer Super Choices: Matching Governance Solutions," Australian Government, December 14, 2009; "Superannuation Review Proposed Simpler System for Default Super Funds," Smartcompany.com.au, December 15, 2009.

Publication date: 12.2009