The threat of banks exploiting their business relationships with employers to cross-sell retail superannuation funds has been foiled by recommendations in the Financial System Inquiry (FSI), according to Industry Super Australia.
David Whiteley, chief executive of the organisation representing industry funds, noted that several sections of the report will limit the ability of banks to exploit any end to default awards system as it current stands.
“What the banks have been lobbying for is they can go to an employer that they provide business services for and offer superannuation too,” said Whiteley, who noted that the report made several references to employer interests on superannuation not aligning with employee best interest.
“Given what the report then goes on to say in the selection process it is clear all the bank’s lobbying has been completely rejected,” added Whiteley, who also welcomed the report’s acknowledgement that low fees should not come at the expense of returns.
The FSI final report recommends a more open tender process for default fund status for which “careful design, rigorous execution and the highest standards of probity and expertise will be required”.
It also recommends that employees by default stick with their existing superannuation fund when changing jobs, to lessen the inefficiency of paying fees to several funds.
The report notes this would “address concerns raised in several submissions, about superannuation funds offering employers inducements to choose the fund”.
However, the proposed changes will only come about if MySuper funds are shown not to be able to reduce the fees they charge by 2020 at the latest.
Speaking at the press conference to launch the report, David Murray warned many existing funds would find it challenging to reduce their fees by that date.
“We have recommended that MySuper be replaced with a competitive mechanism for allocating default members to the best fund only if it has failed to deliver substantial fee reductions by 2020,” said Murray. “This represents a challenge to the super industry because we still believe 120bps of accumulation (as an average) fee is too high.”
The Inquiry notes its reservations about whether MySuper will improve the “competitive dynamics and efficiency of the superannuation system and realise the full benefits of scale”.
Both AIST and ASFA welcomed the stay of execution on MySuper.
“The industry has invested a lot of time and expense in implementing the MySuper and other Stronger Super reforms,” said Tom Garcia, chief executive of AIST. “We congratulate the FSI on recognising that these reforms must be given time to be implemented properly before they can be effectively assessed, particularly in regards to whether they are delivering further fee reductions”.
Pauline Vamos, chief executive of ASFA, said most people acknowledged inefficiency of some legacy products in the system, but that the industry needed until at least 2020 for the current reforms to work their way through the system.