Finance Your Super Productivity Commission proposals ‘loaded’ in favour of the banks

Productivity Commission proposals ‘loaded’ in favour of the banks

malcolm turnbull election
The dismantling of default super is an 'ideological attack'. Photo: Getty
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At first blush the Productivity Commission’s draft report on alternative models for allocating default superannuation appears entirely sensible. But in a febrile political environment the report may prove a loaded weapon in the hands of a Coalition government that has targeted trade unions as public enemy No.1.

Last year, the Turnbull government instructed the Productivity Commission to “develop alternative models for a formal competitive process for allocating default fund members”.

And so it did. On Wednesday, the commission proposed a radical change that would uncouple compulsory superannuation from industrial relations.

At present, employees new to a workplace are given the option to choose a fund; those who do not have their super contributions paid to a default or employer-nominated fund. Two-thirds of fund members currently rely on default funds.

It’s no coincidence that industry funds, founded by the union movement, are the primary recipients of default contributions through this system.

The commission’s draft report outlines four alternative models, each of which is based on “competitive processes” that would remove superannuation from awards and “harness healthy competition” by “nudging choice to a smaller set of high-quality products”.

And there’s the red flag: the word “competition”. Australians know that, at best, competition is a two-edged sword. Consumers who are paying obscene credit card interest rates, power bills and health insurance premiums have little reason to welcome any change that comes in the name of competition.

The banks, which have successfully lobbied to avoid a royal commission into their dubious practices, have every reason to cheer the proposed leg-up, as they can be the only winners.

Opening up default funds to competitive forces will suit retail funds, many of which are controlled by the major banks. The retail funds will be rewarded for offering ostensibly low-fee products with attendant bells and whistles without promise of better returns for members.

Why should industry funds find themselves in the firing line of the proposed changes? Unlike the retail funds, the industry funds are run to profit members not shareholders, and they have on average consistently outperformed their bank rivals.

This looks like an ideological attack.

The government had the benefit of setting the terms of reference, which has loaded any findings to favour the banks at the expense of the union-based industry funds.

The government is also free to pick, choose and modify which of the recommendations it accepts. Unlike the Fair Work Commission, the independent tribunal which recently decided to cut penalty rates, which can mandate change, the Productivity Commission is merely an advisory body. The government can select whichever proposal fits its agenda.

No one disputes the need for structural change. After 25 years, the kinks in a notoriously complex system should have been ironed out years ago. However, the commission’s report is a gift for a government which has industry funds in its sights.

The need for simplifying superannuation, particularly for young people entering the workforce, is clear. As the commission observes, “the current system’s propensity to create multiple accounts is an egregious systemic failure”.

It also argues that, unlike 25 years ago, many more employees today are part-time and there is a greater likelihood to change jobs. The commission is right to argue the superannuation system should reflect this.

However, it would be equally egregious for the Turnbull government to use the commission’s report to disadvantage industry funds, ostensibly in the name of competition, but in reality to strike an ideological blow against the union movement. The ultimate loser will be the consumer.

Leo D’Angelo Fisher is a former associate editor and columnist with BRW and columnist for the Australian Financial Review. He was also a senior writer at The Bulletin magazine.

* He is a member of Media Super, an industry fund.

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