Australians are paying expensive fees for superannuation while the emergence of borrowing through super accounts may pose a major risk to the nation's economy, a wide ranging inquiry into the finance sector has found.
Headed by former Commonwealth Bank chief executive David Murray, the financial services inquiry's interim report - released this morning - also warns that some current settings in the super sector will fail to "stand the test of time".
The inquiry, first raised by Treasurer Joe Hockey when in Opposition, is the first broad ranging investigation of the finance sector since the Wallis Inquiry in the late 1990s and the first in the wake of the Global Financial Crisis.
While much of the interim report focuses on the banking sector and access to finance by corporate Australia, the inquiry
extensively looks at the growth of superannuation.
Assets held by super funds are now greater than Australia's annual GDP at more than $1.7 trillion.
The inquiry found that compared to many other countries, Australians seemed to face high fees and ongoing costs for their super.
The Gillard Government's MySuper accounts, aimed at producing low cost "vanilla" type super accounts, are just entering the market.
According to the inquiry, MySuper may help drive down costs but there are many other areas in super where Australians face high costs.
"There is little evidence of strong fee-based competition in the superannuation sector, and operating costs and fees appear high by international standards," it found.
"This indicates there is scope for greater efficiencies in the superannuation system."
Many Australians are using self-managed super accounts to avoid fees and costs. But there has also been a growth in borrowing done by these funds.
The inquiry warned that this new development could ultimately undermine much of the finance sector.
"Although direct leverage in superannuation is small, the current ability to borrow directly may, over time, erode this strength and create new risks to the financial system," it found.
While critical of too much change within superannuation, the inquiry also raises concerns that current policy settings - particularly generous tax arrangements - may not survive without change.
It found evidence that superannuation was being used to maximise wealth rather than provide for retirement.
It also warned that tax concessions within super, largely accruing to the richest 20 per cent of the population, were unsustainble in the long term.
"To ensure policy stability, the system needs to achieve, and be seen to achieve, its objectives efficiently and equitably, and
the fiscal cost needs to be sustainable. Some evidence casts doubt over whether current policy settings will stand the test of time," it said.
On banks, the inquiry has made the suggestion that the rise of banks considered "too big too fail" was creating a distortion in the financial sector.
It found that the retail sections of banks may have to be "ring-fenced" for ultimate protection by taxpayers but other parts of bank activities allowed to live or die.
The inquiry found small and medium sized businesses faced "structural" impediments to finance, including regulation and taxation rules.
It has canvassed the idea of what it terms a finance database that would help "reduce information asymmetries between lenders and borrowers".
The inquiry also asks for comment on allowing the finance sector to offer corporate bonds without the need for a prospectus as another way to help broaden the finances of businesses.