Australia’s default super system, which applies to the two-thirds of workers who don’t choose their own fund and totals $470 billion in savings, would be broken out of the industrial relations system under draft proposals put forward by the Productivity Commission.
The Commission believes its recommendations would prevent workers from being signed up to multiple funds as a result of changing jobs, saving up to $150 million in unnecessary fees and insurance costs yearly. It estimated as many as 40 per cent of workers have multiple accounts.
Productivity Commission deputy chair Karen Chester told The New Daily under the four alternative models put forward, “members would only default once”.
Once a default option was allocated it would follow a worker though their career unless they made an active choice of another fund.
Industry Super Australia has hit out at the new proposals with CEO David Whiteley telling The New Daily the recommendations “are effectively a solution looking for a problem”.
The proposals would shift the balance in the super system to costly and underperforming for-profit funds, Mr Whiteley said.
“They will shift the balance from a system that safeguards consumers with high-quality workplace defaults to one focused more on employee choice which better suits the profit-driven, bank-owned retail funds,” he said.
“Their report does not acknowledge, let alone address, the systemic underperformance of funds offered by for-profit providers.
“Hundreds of billions of dollars in savings for millions of Australians are in underperforming and costly retail and bank-owned funds, yet the Productivity Commission’s prescriptions will do nothing about it,” Mr Whiteley said.
“The Productivity Commission approach focuses heavily on the first super fund a person joins – this will place banks in the box seat when a young person opens their first bank account and they cross sell a super fund at the same time.”
The Commission’s proposals include options for employers and employees to choose defaults from a list of between four and 10 funds that meet efficiency and performance standards and would be chosen by a dedicated government panel.
This would replace the current system where default funds are often listed in industrial awards overseen by the Fair Work Commission. That system has been hamstrung in recent years by the refusal of the federal government to appoint new members to the expert panel that selects funds for the FWC.
Eva Scheerlinck, CEO of the Australian Institute of Superannuation Trustees, also criticised the Commission’s recommendations. “To propose complicated new default systems – that include setting up another government body – without even bothering to review the existing system is not only ludicrous, it is also inefficient.”
The Commission will issue its final report on default super in August. The federal government will then have to choose what changes to implement.