Neither the Coalition nor Labor has committed to implementing a set of reforms that would radically overhaul the way ordinary Australians save for their retirement.
The proposals, published on Tuesday by the Productivity Commission, would likely leave all sides dissatisfied in the fierce battle over who gets to safeguard and increase ordinary Australians’ retirement savings.
The report’s key recommendation was to take away from employers the responsibility to pick a ‘default’ super fund on behalf of their employees.
Instead, the onus would be on the individual to pick from a list of up to 10 vetted, high-performing super funds.
This vetting process could save some workers hundreds of thousands of dollars over the course of their lives, the report claimed.
But it would also represent a radical shift for a system that has always been centred in the workplace, and has relied on the collaboration between employers and unions.
Read a full account of the proposal here.
Responding to the findings on Tuesday, Financial Services Minister Kelly O’Dwyer called the Productivity Commission’s proposal for a list of 10 ‘best-in-show’ funds “a really clever solution”.
“I think it certainly goes to solving a lot of the issues that they have correctly identified in the industry right now and I think we have to think of more ingenious solutions,” she told ABC Radio National.
However, she stopped short of committing to implementing the draft proposal, which the Productivity Commission will re-release in its final form later this year, following industry and public feedback.
While the best-in-show measure would favour industry and other not-for-profit funds because they have far better returns than for-profit funds (see graph below), it would also severely undermine industry funds’ distribution model.
Industry funds are joint ventures between unions and employer groups, and their main way of gathering new members is as default funds listed in Fair Work Commission awards and enterprise bargaining agreements (EBAs).
The Productivity Commission is proposing abolishing this distribution model altogether.
The Coalition has consistently supported removing superannuation from industrial awards and EBAs, and its decision to make “default fund allocation mechanism” a key focus of the Productivity Commission’s terms of reference reflected this.
The largely bank-owned retail funds have long lobbied the government to remove super from the awards system, because it prevents them from marketing their own default super products directly to employers.
The Coalition has been far more sympathetic to this cause than Labor.
However, while the Productivity Commission recommends cutting super out of awards, it does not give the banks what they want. Under the proposed rules, the emphasis on returns would either discount the poor-performing retail funds, or force them to massively lift their game.
In this sense the proposal is to neither the industry funds’ nor the retail funds’ advantage, focusing exclusively on perceived consumer outcomes.
Speaking on Tuesday, Labor’s Shadow Treasurer Chris Bowen – whose party is more sympathetic to industry funds – called the Productivity Commission’s report “serious” and “sensible”. However, he accused Ms O’Dwyer of waging an “ideological war” against industry funds, which he said she inaccurately referred to as “union funds”.
“Kelly O’Dwyer has engaged in a continual ideologically-driven attack against one part of the superannuation industry,” he said.
“I will work with industry funds, I will work with retail funds, I will work across the board in superannuation and listen to good ideas when it comes to improving and strengthening superannuation.”
Ms O’Dwyer refuted Mr Bowen’s claim, saying she was “completely agnostic in terms of whether it’s a retail fund or an industry fund”.
“I simply want to see low fees, good governance. I want to make sure that members’ money is being spent in their best interests and that their money is working for them, whether it’s a retail fund or an industry fund. I don’t discriminate.”
Alex Dunnin, director of research at Rainmaker, told The New Daily the report contained “many things that all sides of the industry will agree with and disagree” adding it was “about as non-partisan as you get”.
“But it’s not government policy. It’s not even a government report. It’s just a report to government.”
He said the report confirmed “most of what we already know”.
“Industry funds (including public sector and well-run corporate funds) do very well. Retail funds, because of their higher fees, can struggle to match up. Some small funds are struggling and yet there are so few mergers, and some funds with low performance and high fees still seem to have thriving businesses.”
However, he warned not to discount bank-owned funds from upping their game to compete with the not-for-profit funds.
While he said the ‘best in show’ proposal was “bold”, he said it would “punish some still quite good funds and in that way not just level the market but force many funds out of default super”.
The New Daily is owned by Industry Super Holdings, which is owned by a number of industry superannuation funds.