The Financial Services Council (FSC) still wants the Fair Work Commission out of the default fund process despite acknowledging that a more exacting approval process may be needed for MySuper funds to be safely used as defaults.
The FSC’s acknowledgement, contained in its submission to the Productivity Commission’s review of alternative default models, follows an admission by the Australian Prudential Regulation Authority (APRA) that not all MySuper funds have met expectations and that not all of them may therefore be suitable as default.
In its submission to the PC made public yesterday, the FSC said it was proposing that the safety net for consumers could be strengthened through an enhanced MySuper approval process.
It said such an enhanced MySuper approval process would focus on member outcomes and be an ongoing assessment, rather than the narrow, point in time assessment APRA conducts when it is granting a MySuper authorisation.
“This assessment of MySuper performance will ensure the population of MySuper products will improve over time so that employers and consumers who select a MySuper product are protected,” the FSC submission said.
“It also allows employers to negotiate tailored MySuper products for their employees where this affords the employer a competitive advantage in the labour market.”
However in advocating a more exacting MySuper approval process, the FSC has maintained its argument for the removal of the Fair Work Commission from the default fund selection process.
It said the current industrial system was not designed with a view towards competition and market design.
“The industrial and highly protectionist overlay on the superannuation system acts to limit competition and stifle innovation, and has resulted in the proliferation of subscale and inefficient superannuation funds, as well as discouraging consumer engagement,” the submission said.
“There are market failures in the current model that must be addressed through regulatory reform. Major principal-agent issues exist, where trade unions, employer associations and the Fair Work Commission are all entitled to make decisions on behalf of consumers, sometimes in the context of serious conflicts of interest.”
