The loud cries from for-profit funds to open up awards are self-serving and neglect members’ interests, writes FIONA REYNOLDS, CEO of AIST.
As the rollout of the first of the Stronger Super reforms begins, it appears that the next battleground in superannuation is emerging. There has been much clamour in recent weeks about default funds, superannuation in industry awards, and other workplace agreements. It’s obvious that some sectors of the industry and the Opposition are revving up their campaign to “open up awards”. This is despite the fact that the Government has already committed to the Productivity Commission reviewing how superannuation funds are selected as default funds in modern awards. Given this commitment, recent demands to bring forward the scheduled review and the urgent attempts to elevate this matter to the top of the action pile seem out of all proportion.
There is no shortage of issues facing the industry, let alone the challenge of successful implementation of the current reform program. In any case, where’s the fire? Is there some kind of systemic market failure occurring in the workplace, with fund members year after year unknowingly being funnelled into high-cost, highfee, underperforming funds? Is there something so fundamentally wrong with the current default system that we must drop everything and deal with this question right now? In my view there isn’t. There can be no debate that for the best of two decades, our award-based default system has protected millions of Australian workers from having their retirement savings eroded through unnecessary fees and charges. No one should be surprised, or indeed suspicious, that the employee and employer representatives involved in nominating default funds in awards and collective agreements have tended to favour not-for-profit funds. This is in employees’ best interests. It’s an indisputable fact that the members of not-for-profit default funds are many, many thousands of dollars better off than if their money had instead been invested in for-profit super funds.
This is why the default system is so important. We know that many people do not actively choose their super fund and we know that there are many individual employers who may not want that responsibility either. But they do want their employees being in the lowest-cost, best-performing funds. The current default system provides a highly effective and efficient mechanism to achieve that result. It is good public policy in action. Critics of the existing system are fond of talking about the benefits of competition and free markets. They conveniently ignore the fact that Choice of Fund legislation introduced in 2005 means most employees can choose to be a member of any super fund they like. What the critics don’t like is that, in their view, not enough employees are choosing for-profit funds.