Large employers should be required to select a default MySuper product for their employees, while smaller employers should be able to resort to a selection process via the superannuation Clearing House, according to Mercer.
In a submission which made no reference to the continuing involvement of Fair Work Australia, Mercer has told the Productivity Commission inquiry into alternative default models that those small employers who chose to use the superannuation clearing house would be able to access a selection regime overseen by the Australian Government Actuary (AGA).
It said the AGA, with the support of an expert independent advisory committee, would filter a select list of 15 to 20 public offer MySuper products through a competitive process and that this ‘filter’ would ensure the MySuper products selected offered a competitive combination of fees, investment arrangements, member services, and life and total and permanent disability insurance offerings.
The Mercer submission said that the criteria used to filter the list of 15 to 20 default funds would be made public prior to funds submitting their proposals to join the list and that the AGA would be required to undertake a regular reappraisal of funds on the list every five years.
It said that Mercer supported compelling employers that do not satisfy the Clearing House small business definition to select a default fund but it did not consider it appropriate to impose this obligation on smaller employers.
“A key advantage of compelling larger employers to select a default fund is the competitive pressure that this brings to the superannuation market and, from the employer’s viewpoint, the opportunity to enhance their employment offering by securing superior superannuation benefits for their employees,” the submission said.
“Attracted by the opportunity for new members, master trusts, and industry funds compete to be the default fund for large employers and may offer lower fees and/or improved insurance offerings,” it said.
“It is Mercer’s experience that many major employers are able to develop and negotiate much better superannuation arrangements for their employees than are available to the general public. The removal of default funds from the overall system would remove this benefit to many employees.
“However, this opportunity to secure additional benefits for employees is not available (or is very limited) for smaller employers. Further, the number of superannuation funds, variable fees, disparate group insurance offerings and suite of investment options are difficult considerations for a small employer to understand in respect of a few employees and particularly while they potentially struggle with business set-up and/ or other operational considerations.”
