Australia’s superannuation industry has been united in its condemnation of a single controversial proposal in the Productivity Commission’s report into superannuation, released today, which recommended sweeping changes to the sector.
The 722-page report aims to boost super savings by $3.8 billion a year by ridding the sector of underperforming funds, reducing the proliferation of multiple accounts, and introducing a list of best-performing funds to simplify fund selection – changes the report estimates could add $533,000 to new job entrants’ super by retirement.
However, one of the report’s key measures – the introduction of a list of the 10 best performing funds that the commission claims would boost retirement balances by an average of $165,000 over a lifetime – has been questioned by both the Opposition and senior industry figures.
They warned the ten-fund ‘best in show’ list, which would be presented to new employees when they start a new job, could stifle competition and innovation.
Currently, new employees are offered an industry-specific fund by default when they commence work.
Industry Super Australia (ISA) chief executive Bernie Dean said the current system should be strengthened rather than abandoned to make room for a new model.
“In essence the Productivity Commission is abandoning the proven, low-cost industrial default system in favour of a choice-first architecture that has been ground zero for consumer harm,” Mr Dean said.
ISA welcomed the report as a good first step in strengthening the super system, but warned its “consumer safeguards were inadequate and ignored big opportunities to boost member accounts.”
Association of Superannuation Funds of Australia (ASFA) chief executive Dr Martin Fahy said he was disappointed to see the ‘best-in-show’ proposal – originally put forward by Productivity Commission last year – was still on the table.
“It risks introducing an oligopolistic structure into the industry, and having the adverse effect of reducing competition,” he told The New Daily.
Watch the video for an overview of the Productivity Commission report
Sally Loane, chief executive of bank and retail fund lobby Financial Services Council, said a system wherein only ten funds own most of the super industry would have consequences for competition, particularly for new entrants to the market.
Shadow Treasurer Chris Bowen echoed the industry’s condemnation of the proposal, saying his reservations about the idea had not been shifted by the PC recommendation.
“I’ve previously expressed concern about the Productivity Commission’s recommendation for the so called ‘best-in-show’, top-10 performing funds, and I maintain those concerns,” he said.
“There’s not much which unites the entire superannuation sector, but both industry funds and retail funds, for example, have pointed out there are perhaps unintended consequences from the best-in-show model.
“My concern is that a fund that might be well-performing at one particular time might not be well-performing in the future years, and that all these things need to be considered, including the competition impacts.”
Government backs report findings
Treasurer Josh Frydenberg described the report as “vitally important” and said it revealed the “structural flaws” in the super system.
“These flaws in the system are costing members $3.8 billion a year and for someone entering the workforce today, it could be costing them more than $500,000 at retirement or about half of what their retirement balance should otherwise be,” Mr Frydenberg said.
Mr Frydenberg said the Productivity Commission Report endorsed many of the government’s superannuation reforms that are currently before the Parliament.
Those include the automatic consolidation of low-balance inactive accounts; caps on fees for low-balance accounts; tougher penalties for trustees and measures to prevent inappropriate insurance premiums eroding member account balances.
“It’s time the Labor Party stop blocking these amendments, listen to consumer advocates, independent experts and support what the Productivity Commission calls ‘must have’ common sense reforms that put the interests of members first,” Mr Frydenberg said.
Among the recommendations to reform the estimated $2.8-trillion superannuation sector are:
- Employees should only ever be defaulted into a superannuation account if they do not have an existing account.
- Workers without a superannuation account should be offered a list of the 10 “best in show” funds to choose from within 60 days.
- The list of top-10 super funds should be formulated by an independent panel to judge whether they deliver the best outcomes for their members.
- All APRA-regulated super funds should be subject to an annual outcomes test, measured against clear benchmarks.
- Funds that fail the benchmarks over eight years and fail to improve their performance within 12 months should compensate their members or have their members transferred to better funds, overseen by APRA.
- All superannuation accounts with a balance less than $6000, or inactive for 13 months or more, should be consolidated into a single account by the Australian Tax Office and APRA.
- The federal government should require superannuation funds to publish simple to understand dashboards for consumers to compare their progress.
The Productivity Commission report foreshadows the likely recommendations to be handed down by financial services royal commissioner Kenneth Hayne, in his final report to the government this month.
Mr Hayne and his solicitors received the report in December and are expected to adopt many of the recommendations in their findings.
The New Daily is owned by Industry Super Holdings