Recent revelations by the Productivity Commission shine a light on some very dubious practices that go on within some superannuation funds and highlight the entrenched poor performance that is draining our retirement funds.

These developments should have us all sitting up and taking a lot more notice of what’s happening – it’s our money after all.

But the most worrying aspect of the issue is that many working Australians under the age of 50 couldn’t care less about their super. In part, that’s due to our complex super system and the difficulty in finding straightforward information about how super works, what fund is best for our needs, and how all the fees and charges work.

Even with this in mind, it’s the complete apathy that’s our biggest problem.

Wake up to your money

Superannuation funds manage around $2.6 trillion of our hard-earned cash. The whole purpose of this system is to make sure we all have some money to live on when we retire.

With 9.5 per cent of our annual income going into super each year, it’s amazing how many people either forget about that money altogether or are completely disengaged about what’s happening to it (often both).

Research shows there are many people who don’t even bother to check their fund balance when the statement arrives (or who don’t read the details). They don’t understand that the money they put aside till later is an investment that will grow. A 2014 Westpac study found a third of Australians would rather take $200 in cash now than $2000 in super.

We need to wake up – and fast.

Would you lose track of a savings account with thousands of dollars in it? Probably not. Yet 2016 research by the ATO shows there are more than six million “lost” super accounts, which contain a total of more than $17 billion. Accounts usually become lost when we change jobs, move house, or fail to update our address details. We just don’t bother to keep track.

More than 40 per cent of people have more than one super account; some end up with three or more accounts by the time they’re 45. It seems nobody bothers to roll them into one account to run more efficiently. Yet that kind of simple action when you are just 21 years old could give you an extra $407,000 in retirement according to the Productivity Commission. Who wouldn’t want that?

It’s easy to see how some funds have been able to get away with outrageous fees while delivering consistently low returns. Nobody is watching.

We really are our own worst enemy.

The system needs some changes

The case is clear for some major government spending on compulsory financial literacy education. Surely that should be included in our national curriculum as a matter of urgency? We need to teach high school kids about not only super, but money management in general.

But there is more we can do on a system level as well.

What’s waiting around the corner is a whole generation of ‘agile workers’ who cannot support themselves in older age.

The Productivity Commission and the Financial Services Minister, Kelly O’Dwyer, are right to put some major reforms on the table. We need to take back the reins here and force change, although some finer points of the recommendations will have to be worked out.

There’s no doubt some super funds have been able to get away with rorting the system, with high fees and a failure to pass on tax exemptions meant to maximise post-work retirement incomes. These issues should be dealt with harshly. We should name and shame such funds, so people can take action and move their money. And if the poor performers leave the marketplace, is that so bad?

Vetted default funds will shake up the industry

We need to work out a better way for superannuation fund selection when people start a new job. Getting it right at the beginning will make a difference, especially if young people have little guidance, or interest, in this area. We need a system based on one super fund automatically following a person around, much like their tax file number — meaning they will only ever have one account.

However, mandating just one main default fund could be problematic. Peter Costello has advocated for a default government-run super fund. O’Dwyer reportedly took that proposal to Cabinet but was knocked back by Treasurer Scott Morrison and Finance Minister Matthias Cormann. Thank goodness. It would have been an uncompetitive monolith that I can’t imagine would have ever achieved its goals.

The latest idea is better. Essentially, we’d have a panel of 10 super funds to choose from (selected by an ‘independent expert panel’ who themselves would be appointed by government). It’s a proposal the Productivity Commission favours. You wouldn’t be forced to pick from the shortlisted funds, but if you chose to, in theory, you could expect a good performing fund because it’s already been independently vetted.

Whatever model we end up with, at least it’s a move in the right direction as it addresses the hordes of people who simply can’t seem to understand how important it is to keep track of what’s happening to their retirement funds.

The other tsunami waiting in the wings

What these proposals don’t address, however, are some far more complex problems with our very outdated superannuation system.

Times have changed. With an increasingly casualised workforce, the growth of short-term contract work, and the ‘freelance revolution’, there is an increasing number of workers who don’t get super from an employer at all and who don’t save it themselves.

What’s waiting around the corner is a whole generation of ‘agile workers’ who cannot support themselves in older age. Combine this with the large number of women who either worked part-time or took years out to care for children (and cannot re-enter the workforce due to age discrimination or lack of recent experience) and you have a waiting tsunami.

Limits on the amount you can now contribute to super each year make it harder to top up retirement savings for these people if they have a good year, or if they inherit some money.

So, while addressing the poor performance of super funds and making the whole thing more efficient is important, we still need to develop better policies to make sure we incentivise and encourage people to want to contribute to their own retirement funds each year – even when they are relatively young.

Driving engagement in this way is the biggest hurdle we face, and we should be doing all we can address it.

 Andrea Michaels is the managing director of South Australian commercial law firm NDA Law and a tax and superannuation lawyer. Twitter: @michaels_andrea