Industry experts have come out and stated that savers in some of Australia's worst performing super funds, have been forced to pay an estimated $3 billion in commissions to financial planners over the past three years.
Despite delivering some of the lowest investment returns in the nation, big banks and insurers have paid the money in an endeavour to persuade planners to sell their funds.
The Sunday Telegraph has released research carried out by financial consulting firm Rainmaker that has indicated that $1.4 billion was paid in commissions by the super industry, of which an estimated $750 million was paid by the big banks and insurers.
According to the latest data released from SuperRatings, the banks have consistently ranked at the bottom of the performance tables.
Some of the worst performing funds in the balanced sector over the last three years have been run by ING, ANZ, AMP Spectrum, AXA, and BT, Westpac's investment arm. Colonial First State's balanced fund, owned by Commonwealth Bank is ranked 39 out of 50 over three years and 45 over five years.
Due to the huge commission payments the impact of the financial crisis on super returns has been made far worse and added to mounting public anger over Australia's super system.
It was recently announced in the Budget, that the retirement age will increase from 65 to 67 from 2017. The increase was necessitated to give workers adequate time to build up a larger fund to avoid the pressure on taxpayers, who must pay for the government provided pension.
David Whiteley, of Industry Super Network, stated that this was a critical issue as we were forced to place nine per cent of our income into super, but have been told that we need to work longer because our savings will be insufficient, and future taxpayers will not be able to foot the bill.
The $3 billion paid by the banks motivates salesmen to place people in poorly performing funds, thereby creating a retirement time bomb, higher taxes and lower incomes in retirement.
The Government's upcoming review into super will need to focus on fees, commissions and conflicts of interest. It seems unjust that banks and insurers are able to use their networks and financial muscle to convince planners to recommend their funds, even though they are plainly not in their client's best interests.
A study by Access Economics has concluded that if super funds were to increase returns by just 0.75 per cent a year, retirees would be better off by $28 per week and it would create an extra $4 billion a year in government tax revenue. This increase could be achieved by simply abolishing sales commissions and moving to a fee-for advice system.