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Productivity Commission suggests ending default super option

Will all workers have to decide?

Will all workers have to decide? Photo: AAP

Another superannuation fight is in the offing, with the Productivity Commission (PC) raising the prospect of scrapping the default superannuation system used by up to 80 per cent of Australian workers who contribute $9 billion a year to super.

The default system directs the super contributions of employees who don’t choose a super fund themselves into one of a panel of funds chosen by the Fair Work Commission (FWC).

Labor unimpressed

Labor’s spokesperson on superannuation, Senator Katy Gallagher, came out against the PC proposal, saying “the government should focus on releasing the full legislative package for its superannuation reforms before they start flagging further substantial changes to Australia’s superannuation system”.

“Australians want to have confidence in the superannuation system. They key to this is certainty and stability, something that the Turnbull government has, through their division and chaos, seriously undermined since budget day.” 

A spokesman for Revenue and Financial Services minister Kelly O’Dwyer said the government would wait for the PC’s final report due next year before commenting.

In an issues paper that is part of a wider review of the efficiency of super, the PC said it will consider a wide range of possibilities including active choice by employees. That would end the default fund system.

“This would remove the employer’s responsibility for choosing a default fund and place the onus on the employee, who may be better placed to make a decision in his or her own best interests,” the report read.

Workers may make poor choices

Workers could lose.

Workers may lose out. Photo: AAP

However that could leave employees without financial expertise open to making poor choices that would cut their retirement benefits significantly, many fear.

Matt Linden, public affairs chief for Industry Super Australia (ISA), told The New Daily there was a danger in creating a free-for-all in super.

“The banks may want to influence the choices employers offer employees by saying ‘we can do a deal on your overdraft’ or something like that.”

That could lead to employees being influenced to go into a bank-owned fund regardless of their suitability, he said.

Default super is frozen

The default super system has been the subject of a political and ideological battle for a decade. It is currently frozen and is unable to add more funds to the lists used under awards and enterprise bargaining agreements.

Default frozen

The system is frozen. Photo: AAP

That is because in 2014 the Financial Services Council (FSC), which represents the for-profit superannuation sector, took legal action to have the FWC’s expert panel dismissed on the grounds it was not sufficiently independent. That panel chooses default funds.

Since then the Abbott and Turnbull governments have chosen not to appoint a new panel, meaning no new funds can be given default status.

The FSC believes the default system as it now stands keeps many of its members from providing default services. One observer from the private super sector, who did not want to be named, told The New Daily “there’s lots of good product out there that can’t be taken to the market”.

Sally Loane like competition.

Sally Loane likes competition. Photo: AAP

FSC CEO Sally Loane told The New Daily “no fund should be afraid of competition. Competition and open markets are in the best interests of consumers”. 

About 20 per cent of default super funds are currently privately owned with the rest being industry funds.

The Australian Council of Trade Unions joined the fray defending the default system.

“The default super system that has been in place in Australia for the last 30 years is world class and delivers great results for all Australians.”

Retail funds cost more

“Analysis (from ISA) over the last 19 years shows that Australians would have been $105 billion better off overall if retail funds had matched the returns of industry funds, so it’s difficult to work out why the Turnbull government wants to push more Australians into funds that give poorer returns,” the ACTU said in a statement.

ISA chief executive David Whiteley said he supports the current merit based process administered through the Fair Work Commission.

“A safety net of the best performing funds is required to protect the interests of the estimated eight million Australians who rely on their employer’s choice of default fund,” Mr Whiteley said.

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