the eligibility criteria by reducing the level offinancial assets at which the age
pension would be entirely withdrawn.^21
But it would be naive to think Hayek’s ideal of a vanishing pension, thanks
to compulsory saving, will ever become a reality. The actuarial value of the age
pension—which is in effect a lifetime annuity, having guaranteed payments
indexed to real wages—in 2015 was a little less than $500,000 and almost
$700,000 for a couple.^22 These sums are broadly equivalent to the superannu-
ation savings an average wage earner could accrue over forty years of work,
assuming reasonable returns. To propose a change in the means test that, in
effect, compels ordinary workers to amass their own pensions rather than, as
now, have them paid mainly from taxation that falls mainly on higher income
earners, would be politically courageous indeed.
10.4.2Excessive Overheads
Superannuation is not costly only to government. It is also blighted by high
investment and administration costs that drastically impede its efficiency.
Whatever their other problems, publicly-managed schemes are relatively
cheap to operate because collection, administration, and investment of con-
tributions can occur through the pre-existing centralized machineries of the
state. Privately-managed schemes do not benefit from the same economies of
scale, and have greater incentives to obfuscate and multiply costs.
In their 2003 review, Drew and Stanford found an‘inefficient, low return
and high cost’superannuation system wracked by‘severe principal-agent
problems’. Since then, the total expense ratio has fallen gradually from 1.37
per cent to 1.12 per cent or around $20 billion in 2013, a ratio that remains
around three times the median OECD average level. For instance, the average
asset-weighted cost of US 401(k) plans was 71 basis points in 2006. The largest
US fund, the Thrift Saving Plan, is managed for less than 5 basis points. The
Grattan Institute argues fees have absorbed a quarter of gross fund earnings
since 2004, and trimmed typical retirement balances by around 20 per cent
(Minifie 2014). Facilitating lower fees is‘the largest single opportunity for
microeconomic reform in the economy’, it says. A 2014 government inquiry
into thefinancial system found fees had fallen by less than half of what they
should have given average fund size grew from $260 million to $3.3 billion
over the decade to 2013.
Lack of member interest has limited competition. Surveys routinely show
fewer than 5 per cent of people change funds in a given year for reasons other
(^21) For a couple the sum would fall from around $1.1 million to $823,000 (a level still far above
the average for retirees). 22
The value is higher for women because they have longer life expectancies at retirement age.
We Must All Be Capitalists Now