The default superannuation system may have passed its time given the metamorphosis of the prudential regulatory environment the system currently operated in, according to Deloitte.
Deloitte partner, national leader of superannuation consulting and advisory services, Russell Mason, told a breakfast event today the greatest challenge super funds faced was engaging with members, particularly the younger demographic, and the default super system was not conducive to this.
Speaking at the Financial Services Council (FSC) BT Political Series event in light of the release of Deloitte Access Economics’ ‘Choice and competition in the Australian default superannuation system’ report in conjunction with the FSC, Mason argued that when industry super funds were initially established in the mid to late 1980s, it was in an environment where workers needed protection.
“We had people being sold inappropriate superannuation products: products with high commissions, products with no insurances, products with inadequate member communications, and there were limited regulations,” Mason said.
With the Australian Prudential Regulation Authority’s (APRA’s) predecessor, the Insurance and Superannuation Commission (ISC) having just been established in the late 1980s, the industry lacked minimum standards to which it could adhere. The Australian Taxation Office (ATO) governed super but not as a prudential regulator.
“Today we’re in a very different environment. We have a highly regulated industry, where funds are required to be licensed by APRA and in worst cases by ASIC [Australian Securities and Investments Commission],” Mason said.
“So if you move to today from 30 to 35 years ago we would argue that the protections that needed to be in place in super back in the late 1980s have very much changed because of the regulations being introduced but also because of the regulator that is in place.”
FSC chief executive, Sally Loane, argued the default super system in its current form encouraged ambivalence rather than competition and innovation.
“Competitive markets are more innovative. Competition spurs investments in products and innovation that benefit consumers. And when someone has to choose a product or service they engage with that product or service,” Loane said.
She added the current system did not allow employees to choose a super fund to complement their purpose and desired lifestyle, noting 19 per cent of employers were found to offer no employee choice.
“Enterprise agreements lock people out of super. This is not default, it’s a condition of employment. There are still two million Australians locked out of choice and their employer tells them which fund to choose,” she said.