Association of Superannuation Funds of Australia (ASFA) chief executive Dr Martin Fahy says the Productivity Commission’s draft report on super has the potential to transform the industry.
“The proposal to allocate default superannuation to 10 so-called best-in-show funds would dramatically change the retirement funding landscape, and raises questions with respect to innovation, competitive intensity and diversity,” Fahy says.
Similarly, the Financial Services Council says it has long advocated for a new, modern, fit-for-purpose superannuation system and the key recommendation of the Productivity Commission’s draft report is consistent with that.
In particular, FSC chief executive Sally Loane says the recommendation to take the decision of where to allocate default funds out of the hands of unions and employers and put it into the hands of consumers deserves support in the modern workplace.
“Giving consumers just one default fund they can carry from job to job will also address the chronic and massive problem of multiple accounts, which still afflicts our system to the great detriment of consumers,” Loane said. “Poor-performing funds must lift their game and put the interests of consumers first. The best funds, whether retail, industry or corporate, have nothing to fear from competition.”
What’s being tabled?
The commission has found that a third of Australian superannuation members have multiple accounts, costing them nearly $2.6 billion a year in excess insurance premiums and administration fees.
Its new draft report, therefore, recommends that workers be allocated a single default product from a list of top funds when they enter the workforce, to avoid multiple accounts. This shortlist would move members towards good products while still allowing them to make a choice.
The report also found that members would have collectively gained a further $1.3 billion each year had all MySuper products delivered returns in line with the top-performing funds. For example, being defaulted into a single top‑performing MySuper product would lift the balance of the median 55-year-old by up to $61,000 upon retirement, compared with being defaulted into two underperforming products, the report states.
It also means that, for a new workforce entrant today, the gain would amount to $407,000 by the time of retirement in 2064.
The commission is also pushing for mergers of smaller funds in the union and employer-backed section, to drive down account costs.
The draft report, which is called Superannuation: Assessing competitiveness and efficiency, is the latest phase of the commission’s multi-year assessment of the superannuation industry. A final report will be provided to the Australian Government at a date yet to be announced. The government is required to table the final report in each house of Parliament within 25 sitting days of receiving it.
Minister of Financial Services Kelly O’Dwyer says workers shouldn’t be forced into multiple sets of funds, neither through enterprise bargaining agreements nor because an employer has chosen the fund. She says the commission’s report also blows the whistle on bad-performing funds.
“About a third of all funds the Productivity Commission finds are in unintended multiple accounts, which means if you are a young person who has done a couple of different part-time jobs, through your enterprise bargaining agreement you have, in fact, been forced into starting up a new superannuation fund because you have been denied choice,” O’Dwyer explained. “I am a strong proponent – whether it be at an industry fund, retail fund, corporate fund or a public-sector fund – of low fees, good governance and making sure the fund acts in the best interests of members.”
The commission now seeks information and feedback on the draft report, released today, May 29, 2018.