The Productivity Commission has sought to curtail the hand employers and unions have in determining default super options in its final report on the superannuation system, as well as standing by the somewhat controversial positions it took on aspects of the industry last year.
The report, which was publicly released today, found that current arrangements allowing workplace determination of default funds had worked well for many funds and industrial parties, such as unions, in the past, but that they did not put members first.
“Member outcomes are too variable. Policy settings have created an ‘unlucky lottery’ for members by failing to ensure they are placed in the very best funds — over 5,000,000 member accounts are in funds experiencing serial underperformance,” the report said of the current system.
“This has significant consequences for members’ balances and ultimately their wellbeing in retirement.”
The Commission also found that linking defaults to the member rather than the job would sidestep some potential conflicts of interest encountered by the current system as it would remove employers from the process.
The report emphasised that employers and unions would still have a role to play however, as “member will need to actively choose these [default] products themselves, and employers and unions would be well placed to guide them to the relevant information.”
It said that employers could also still act in their workers’ interests by negotiating with super funds to secure discounts or tailored insurance, noting that corporate funds would remain in the system.
Of course, it’s worth noting that this report comes in the lead-up to a Federal Election, and a change of government to Labor could well see the recommended curtailment of industry funds’ and unions’ influence put to the wayside.
The Commission also used the report to stand by previous positions it took on limiting the default fund list to 10 funds, making insurance for younger members opt-in, and closing funds with low balances when members held multiple accounts last year, despite the outcry voiced by the industry in the proposals’ aftermaths.
Finally, a key take-away from the report was a renewed focus on regulation. Unsurprising in the wake of the Royal Commission, the Productivity Commission suggested greater action was needed from the Australian Prudential Regulation Authority (APRA) and Australian Securities and Investments Commission (ASIC) in particular.
It recommended that APRA focus on licensing and authorisation of super funds, and ASIC concentrate on superannuation trustees’ conduct and the appropriateness of products. The report’s author, Karen Chester, was appointed to a five-year Deputy Chairpersonship at the latter regulator late last year.