ASFA research dismisses Chilean tender process

Adopting of a Chilean-style tender process for the selection of default superannuation represents a solution looking for a problem, according to new research released by the Association of Superannuation Funds of Australia (ASFA).

The release directly counters some submissions made to the Productivity Commission review of alternative default models and claims that such a move would have adverse impacts on member outcomes.

Commenting on the ASFA research, the organisation’s chief executive, Dr Martin Fahy said the Chilean Government had introduced a tender process to solve a particular issues but that those issues were not relevant in the Australian context.

“In Chile, there were a very small number of pension fund providers in the market and individuals did not have access to low-cost fund options,” he said.

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“The Australian superannuation industry is a much more competitive market. There are low levels of market concentration at the fund level and initiatives such as choice of fund and member investment choice have enhanced competition. The Chilean model, with only one recent round applicant, has failed to bolster competition.”

Dr Fahy said a tender process like Chile’s would inevitably result in funds developing products that focussed on lower fees at the expense of long-term returns and the dropping of services that many members expected, such as provision of information and advice.

“This would lead to inferior investment outcomes for fund members and a lower standard of living in retirement, as well as a significant reduction in the range and quality of products and services offered to members,” he said.