The Financial Services Council (FSC) has responded to a repeated call by Industry Super Australia (ISA) to restrict the default funds under the MySuper system claiming it is protectionist behaviour that exploits a loop-hole in the choice of fund legislation introduced in 2005.
The choice of fund legislation, introduced in 2005, allowed employees to choose their own superannuation fund or remain with their employer's chosen fund. However the legislation exempted employees under state awards or industrial agreements and Australian Workplace Agreements, which have since been called Enterprise Agreements.
FSC Director of Policy Andrew Bragg said "even under this exemption it is hard to imagine any justification as to why someone would deny an individual the right to choose their own superannuation fund".
"This is undermining the core principles of people being able to choose their own superannuation fund. It was not the principle of the legislation to restrict choice for some members, particularly given the compulsory nature of superannuation. To do so is inconsistent with the aims and purposes of superannuation," Bragg said.
Bragg's comments come as the Industry Super Australia's (ISA) reiterated its position, released in August, that the Financial System Inquiry (FSI) should restrict banks or related entities from selling default super fund services to an employer where the bank is already the main banking provider to the employer.
ISA also called for measures to ensure that retail and bank-owned superannuation funds delivered median returns to default fund members before being able to pay super investment dividends to shareholders.
ISA argued that default fund choice should be restricted to only better-performing funds and stated that industry funds had typically outperformed retail funds over the long term.
Bragg rejected this position and stated that proposals to hold back dividends to investors were a smokescreen to avoid scrutiny of an anti-competitive super system.
He said the opening up of default funds was part of series of changes that needed to come out of the FSI in regards to superannuation and includes independent directors on super fund boards and removing the ability to use Enterprise Agreements to restrict or deny fund choice.
