Assistant Treasurer Kelly O’Dwyer has given a clear signal that the federal government is set to unveil further changes to the superannuation system by stating that there will be no moratorium on industry reforms.
This is despite the government announcing on Wednesday that the Productivity Commission will soon begin a review of the entire superannuation system to assess its efficiency and competitiveness.
Announcing the Productivity Commission’s review, Ms O’Dwyer said another key objective would be to develop alternative models for allocating default funds.
“I also want to stress that there won’t be a moratorium on the government proceeding with superannuation reform while the review is going on,” she added.
Ms O’Dwyer said the review was not meant to delay change but “it’s about making sure that the system is dynamic and fit-for-purpose in the modern world.”
The chief executive of Industry Super Australia, David Whiteley, said the Productivity Commission review must put the financial interests of the public ahead of the commercial interests of the banks once and for all by creating a “safety net” for the millions of Australians that rely on the default fund selected by their employer.
Mr Whiteley said three recent major financial inquiries, the 2010 Cooper Review, the 2012 Productivity Commission review and the 2014 Financial Systems Inquiry all demonstrated the need for a “safety net”.
“Given the importance of superannuation to the quality of life of all Australians and its economic potential, the selection of default funds must be transparent and merit based,” he said.
“Super funds must be judged on the long term net returns delivered to members.
“Industry super funds support the current merit based system designed by the Productivity Commission in 2012, which provides a safety net for workers that do not choose their own fund.
“This process is opposed by the habitually under-performing bank-owned super funds.”
“The Productivity Commission should closely examine the reasons for the chronic underperformance of the bank-owned super sector and measure its significant drag on the efficiency of the entire retirement income system, public finances, and economy generally.”
Bank owned funds need review
Pauline Vamos, the outgoing chief executive of the Association of Superannuation Funds of Australia, said it was important the Productivity Commission recognised the important benefits of the current system, including the ability to choose a fund and investment options, active investment management of default portfolios and the provision of insurance and advice.
“There is always room for improvement, but it’s important to start by recognising what our system does well. We need to make sure that the way we evaluate the system is fair, and that we are measuring the right things in terms of efficiency,” she said.
“For example, we can’t assess the efficiency of the industry effectively unless we exclude external forces like economic conditions and the broader tax and regulatory environment.”
Fees still too high
Federal Treasurer Scott Morrison said that while MySuper had represented a good start, “more needs to be done to reduce fees and improve after-fee returns for fund members.”
“The Financial System Inquiry noted that fees have not fallen by as much as would be expected given the substantial increase in the scale of the superannuation system, a major reason for this being the absence of consumer driven competition, particularly in the default fund market,” he said.
Mr Morrison made it clear it wants the PC to look at developing alternative, workable models around allocating default funds.
“These models would provide viable alternatives for the government’s consideration, depending on the outcomes of the review of the efficiency and competitiveness of the superannuation system, which the Productivity Commission will be asked to undertake following the full implementation of the MySuper reforms,” Mr Morrison said.