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This paper proposes an approach to design a national default option to maximize retirement savings in defined contribution superannuation, using a proportionate shareholding approach which minimizes total cost of investing for all investors. The paper provides a new rationale for passive investing based on the hypothesis of market inefficiency. It also provides the first formal proof of the “Cost Matters Theorem”. The proposed idea of a national default option will create a simple, understandable and cost-effective alternative for all workers and will also provide a performance benchmark to encourage the development of a more competitive and efficient superannuation market.
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