Redesigning Choice and Competition in Australian Superannuation

Abstract

The Australian superannuation system was founded on the assumption that market competition will deliver economic efficiency in a largely private defined contribution system. Since the Wallis Report (1997) explicitly articulated this view, total assets in the system have grown substantially through contributions, but net earnings from investments were relatively low. Despite the presumed role of competition, the investment performance of the system continued to be restrained by high fees and costs. Since behavioral economics suggests that market competition is ineffective when investors are rationally bounded by complex choices, the MySuper recommendation of the Super System Review seeks to provide simpler choices and increase competition in default options for most investors.

Keywords: Behavioral Finance, Economic Efficiency, Investment Choice, Market Competition, Pension Fund