David Murray says super fees are “too high” and suggests a prohibition on borrowing by super funds

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Australian super funds are governed by unacceptably high fees, and borrowing by super funds should be prohibited. These are just two of the 28 observations on Australia’s financial system that were made in The Murray Inquiry’s interim report, released on Tuesday.

The report found “little evidence of strong fee-based competition in the superannuation sector,” and suggested there “is scope for greater efficiencies in the superannuation system.” While the report did not make any recommendations for change, it provides insights into the thinking of leading figures within the financial sector, and where improvements could be made.

In a recent interview, Switzer Super Report director Paul Rickard said Australia’s superannuation system is quite unique compared to other countries, and despite a lowering of fees within the sector, they aren’t coming down fast enough. “Any impartial observer would say that most superannuants’ are paying too much for their superannuation,” he said.

According to the Grattan Institute, Australians are spending as much as $20 billion a year on superannuation fees and expenses.

Rickard pointed out how self-managed super funds are an appealing option compared to retail funds. “[Self-managed super trustees] have largely voted with their feet and said they don’t want to pay those fees.”

Managing director of the Switzer Super Report, Peter Switzer, added “too many Australian’s are not interested in their super and there’s a whole lot of people who do not know what they are missing out on.”

The 460 page interim report also discusses restoring the general prohibition on direct leverage in superannuation on a prospective basis. SMSFs would no longer be able to take out a limited recourse loan to buy an investment property.

“If allowed to continue, growth in direct leverage by superannuation funds, although embryonic, may create vulnerabilities for the superannuation and financial systems” the interim report states.

In an interview with Peter Switzer, Murray commented on this observation.

“The issue from a stability or safety point of view, is there is risk in a banking system because it is leveraged, and we don’t want to double up that risk by having a superannuation system which is also leveraged. We’ve put forward one option; that we should not allow direct leverage in the superannuation system – that is – in the self-managed system or the APRA regulated system,” he said.

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