The Government has finally referred default funds under modern awards to the Productivity Commission, but as Mike Taylor reports, the outcome is unlikely to matter in the life of the current Parliament.
The Productivity Commission will spend much of this year reviewing the controversial issue of default funds under modern awards, but the terms of reference laid down by the Government are such that it will not necessarily touch on a very important point – the relevance of the industrial judiciary to superannuation.
Notwithstanding the fact the Productivity Commission will examine key elements such as “the design criteria for the selection and ongoing assessment of superannuation funds eligible as default funds in modern awards by Fair Work Australia”, the level of fees incurred and the scale of funds, it will not examine the underlying relevance of the Government's legislation.
By introducing the legislation underpinning default funds under modern awards, the Labor Government effectively turned back the clock to the early days of the Prices and Incomes Accord between the Hawke/Keating Labor Government and the ACTU and before the superannuation guarantee – the period of award superannuation.
Virtually ignoring the reality that the superannuation guarantee had significantly diluted the influence of particular trade unions on the selection of superannuation funds, the Government’s legislation saw Fair Work Australia selecting menus of default funds based on an industrial relations regime which had predated the election of the Howard Government in 1998.
The problem with the current Productivity Commission review of default funds under modern awards is that, at the end of the process, its terms of reference will have dictated that it has done little to break the nexus between superannuation and an industrial relations regime, which had more relevance in the early 1990s.
Under the terms of reference delivered by the Government, the Productivity Commission has eight months to deliver its findings – meaning that it is likely to present its final set of recommendations to the relevant minister in around September.
Allowing the usual time for the Government to consider those recommendations, it is unlikely they would be reflected in policy any time much before the middle of 2013, by which time most attention would be directed towards the next Federal Election.
In circumstances where the Government promised the Productivity Commission review of the default funds at the 2010 Federal Election, the timetable and terms of reference announced by Assistant Treasurer, Mark Arbib, in mid-January could be interpreted as adding a measure of credibility to Opposition claims that the Government has been acting to protect its union and industry fund constituents.
However, such claims overlook the fact that while many retail superannuation funds claimed to have been disadvantaged by the current default funds arrangements, so too did a number of industry funds.
A little-recognised fact is that reference to historical award respondents failed to accommodate the evolution of industries and the consequent and legitimate entry of other funds.
What is true of the current arrangements around default funds under modern awards, however, is that they have served to advantage those industry funds with the strongest historical union/industry links and to diminish the level of choice available to both employers and employees working under particular awards within particular industries.
Moreover, it is arguable that in an environment in which companies such as Colonial First State, AMP and BT have brought increasingly competitive offerings to market, the lack of choice within the default fund regime has served to disadvantage employees in particular sectors.
Then too, there is the question of the Government proceeding to implement its Stronger Super and Future of Financial Advice (FOFA) changes without at the same time addressing the default funds anomaly.
No-one disputes that the default fund arrangements will impact key elements of Stronger Super (including the workings of MySuper), and there are suggestions that this, in turn, has implications for FOFA.
Certainly, if the Government had delivered on its 2010 election promise earlier in its current term, then it might have been able to ensure inclusion of the Productivity Commission's findings in the legislation soon to be considered by the Parliament.
By almost any measure, default funds under modern awards represent a glaring loose end in the context of broader financial services policy, and one which is highly unlikely to be fixed in the life of the current Parliament.
If, as the Government's critics suggest, its slow approach to addressing default funds has been owed to protecting the interests of its union and industry super funds constituents, the ploy may backfire if there is a change of government at the next Federal Election.
The Coalition has made its views clear on the existing default funds regime, with the result that any changes it implements will, at the very least, see a return to the regime which existed before 2008.
In the meantime, having just finished their submissions on FOFA and Stronger Super, the financial services community can begin preparing their submissions for the Productivity Commission.
