Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 201

Productivity Commission: super efficiency but at what cost?

In March this year, the Productivity Commission released the Draft Report on stage 2 of its review into the superannuation system. The focus is on a range of alternative default models expected to deliver greater efficiency than existing default fund arrangements.

My greatest concern is that, if efficiency measures are implemented too soon, our retirement system may fail to successfully innovate and attain the level of excellence that our population deserves. We need a fundamental debate on innovation versus efficiency and when it is the right time to switch focus.

The great thing about reviews in Australia is that we are encouraged to share our thoughts via submission, and here is mine.

Don’t focus on efficiency at cost of innovation

When I think about productivity two words come to mind: efficiency and innovation. There is some overlap between the two as, clearly, you can innovate to achieve efficiency. However, in superannuation, there are so many ‘greenfield’ innovation opportunities in the delivery of retirement outcomes that we can treat the two words as distinct. Both words can help drive a better, more productive system.

The Productivity Commission has focused heavily on efficiency versus innovation. This has been a common theme amongst nearly all superannuation system regulatory reviews (‘Cooper’ Super System Review, ‘Murray’ Financial System Inquiry and now the Productivity Commission). Why would this be the case? Cost savings are tangible whereas the benefits of innovation are less tangible. Additionally, cost savings are easily understood by people further distanced from superannuation such as politicians whereas the benefits of innovation become even more of an unknown and not well understood. This probably adds to the pressures faced by people running these regulatory reviews.

I believe that successful innovation provides the greatest potential uplift to retirement outcomes of Australians. In my submission, I estimate that the uplift through better retirement solutions is a multiple of what would be derived from efficiency measures.

But here is the catch: if we switch to a heavy focus on efficiency then the potential to innovate is restricted and many of the potential future innovation-based gains will be lost. Why? Because innovations cost money in the short term, have a failure rate, and deliver benefits in the long term. This does not fit well in a system with a primary focus on efficiency.

There’s a time to switch emphasis

One disappointing reflection on the overall good work of the Productivity Commission is their failure to establish a single aggregated measure of system performance. This makes it difficult to compare the benefits of efficiency versus innovation. The lens through which the Productivity Commission is looking at the complex superannuation system is potentially not completely clear.

If we don’t want to stifle innovation, when is the right time to switch from an innovation focus to an efficiency focus? I argue that the optimal switching point is when the system has matured to the point where it has achieved the majority of its potential. Any earlier restricts the potential to successfully innovate in the future. When that maturity point is reached then efficiency techniques are highly appropriate.

What does this ‘potential innovation-driven system’ look like? To me it looks like a system with the following characteristics, largely driven through technology:

  • A system which has a clear and quantifiable objective around the delivery of retirement outcomes. This measure is used as a driver of resourcing and prioritisation by super funds.
  • A system which, starting with defaults, actively manages the two major risks which super funds should be managing for their members: investment and mortality risk.
  • A system which uses technology to personalise solutions as much as possible, from defaults all the way through to advised members (and the segmentations in between). And it means making use of information and preferences.
  • A system which provides outstanding engagement, again supported through technology.

The challenging question is whether the industry will reach this level of innovation-led excellence. If you believe that it will then the recommendations of the Productivity Commission represent a potential threat to the achievement of system excellence.

On this question, however, I find myself wavering between the words ‘will’ and ‘can’. Will the system really get there? After all the Superannuation Guarantee celebrates its 25th anniversary this year, how much time does a system need to reach its potential? Across the industry I see agents, structures and objectives which don’t necessarily align with what is required to deliver system excellence.

Preoccupation with regulatory changes stifles innovation

In defence, it is fair and accurate to state that the system has been held back by constant regulatory change. It hasn’t really had a clean run at innovation. Perhaps super funds are not great innovators and require innovation prompts from the Productivity Commission.

I find myself uncomfortably settling on the word ‘hope’.

In my submission to the Productivity Commission I make an alternative set of recommendations:

  • I detail an all-encompassing measurement of retirement outcomes that could be used.
  • I encourage a 3-5-year window for a clean run at innovation, after which the industry has either successfully innovated to reach system potential, or it has failed to reach its potential and presumably never will. Either way there must be a deadline for a system not running efficiently.
  • I introduce the concept of innovation targets and prompts.

It is a crux time for the superannuation industry. The ability to focus on member retirement outcomes, measure these holistically and innovate to improve outcomes is of utmost importance. Unless we can deliver and demonstrate the benefits of innovation, there is a likelihood that the opportunity space for future innovation will soon shrink as we are forced to become a system focused on efficiency.

 

David Bell is Chief Investment Officer at Mine Wealth + Wellbeing. He is working towards a PhD at University of New South Wales. These views represent the personal views of the author, and not necessarily his employer.

 

RELATED ARTICLES

Less than 1% of wealthy families will struggle to pay super tax: study

6 stark superannuation policy differences

The SMSF gaps in the Productivity Commission’s Superannuation Report

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Latest Updates

Economy

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Investing

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Property

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Shares

ASX reporting season: Room for optimism

Despite mixed ASX results, the market has shown surprising resilience. With rate cuts ahead and economic conditions improving, investors should look beyond short-term noise and position for a potential cyclical upswing.

Property

A Bunnings play without the hefty price tag

BWT Trust has moved to bring management in house. Meanwhile, many of the properties it leases to Bunnings have been repriced to materially higher rents. This has removed two of the key 'snags' holding back the stock.

Investment strategies

Replacing bank hybrids with something similar

With APRA phasing out bank hybrids from 2027, investors must reassess these complex instruments. A synthetic hybrid strategy may offer similar returns but with greater control and clearer understanding of risks.

Shares

Nvidia's CEO is selling. Here's why Aussie investors should care

The magnitude of founder Jensen Huang’s selldown may seem small, but the signal is hard to ignore. When the person with the clearest insight into the company’s future starts cashing out, it’s worth asking why.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.