Competition and choice is not the Holy Grail

Member-driven competition and choice is not necessarily the Holy Grail, according to the Australian Institute of Superannuation Trustees (AIST).

Addressing Super Review’s Future of Super conference on Thursday, AIST chief executive, Eva Scheerlinck said while the Productivity Commission asserted that member-driven competition and choice would lead to improved outcomes in super, AIST had not seen evident to support this.

Scheerlinck said while choice had 40,000 different investment options, there was less regulatory oversight, disclosure, and publicly available performance data.

“The protracted debate over ASIC’s [the Australian Securities and Investments Commission’s] controversial RG 97 regulation on disclosure of fees and costs in superannuation – now stretching to almost three years – highlights just how resistant some choice providers are to full and meaningful disclosure,” she said.

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“Competition among for-profit sector providers in the choice sector has seen them very successfully lobby to deliver major carve-outs to consumer protection. Poor disclosure across the choice sector makes it virtually impossible for the average consumer to compare products.”

Scheerlinck noted that choice failed members when for-profit providers charged significantly higher fees for their balanced option in the choice arena than in the MySuper arena despite the fact that the two funds had almost identical asset allocations.

“Overall, members of for-profit funds in the choice arena have paid more and got less.  If this is competition at work, it’s not working for choice members,” she said.

“We also remain concerned that poor disclosure in the choice sector puts default fund members at risk of being more easily enticed into a choice fund where providers can charge higher fees.

“Default members do not exist in isolation. As long as fund members can switch out of one fund into another, the choice sector and the default sector will remain inextricably intertwined. In a compulsory super system, it’s not good enough to simply dismiss poor disclosure in choice as a ‘buyer-beware’ issue.”