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The head of the federal government’s review of the superannuation system says the average managed fund in Australia is “too small” on a global scale and further consolidation may be in store.

Jeremy Cooper, who heads the review set up earlier this year, says while “forced, heavy handed” government intervention would not be right, the industry needed to examine the idea.

“Maybe some of the smaller funds at the tail end will realise that they do have to merge,” Mr Cooper told the ABC Inside Business program on Sunday.

“Of course there’s been an awful lot of consolidation already – we’ve come down from thousands of funds to hundreds, and as with any consolidation you don’t want to go too far.”

The average fund size in Australia was about $2.38 billion, which was too small, he said.

“What is exactly the right number is again something I’d rather have the industry tell me than vice versa, but certainly the arithmetic average of around a little over $2 billion in a $1 trillion dollar system and looking globally is way too small,” Mr Copper, who was previously deputy chairman of the Australian Securities and Investments Commission.

Mr Cooper also raised the issue of percentage based fees on super accounts, noting that many offshore funds are moving away from that model.

“The mechanism of a percentage-based fee in a compulsory superannuation system really has to be looked at closely,” he said.

“The key driver is actually getting more assets in the tin, and the percentage fees work to increase the level of remuneration they [managers] get, and really, what I’m saying is, let’s not point to particular numbers but let’s point to that to a way of remunerating people – does it drive the right behaviour?”

Mr Cooper also said there were too many “lost” super accounts in Australia being hit with high fees, and this may be an area in which the government could consider changes, such as setting up a national default fund.

“That’s a pretty unhappy sort of a sector at the moment,” he said.

“There are far too many lost accounts, the fees being charged are far too high, and that might be an area where it makes sense for the government to come in and do it on a very low-cost basis with the motivation of cleaning it up, finding who does this super belong to.”

The Cooper review is due to deliver its final report to the government by June 30, 2010.

The review was set up to examine and analyse the efficiency, structure and operation of Australia’s superannuation system.