THE Productivity Commission is calling for a shake-up in how super funds are selected for workers covered by industrial awards, in a bid to lift competition in a market worth at least $7 billion a year.
Under today's laws, a large share of the retirement savings of people on award wages flows into "default funds" - the option for people who do not choose a super fund.
Employer groups and unions select default funds, most of which are not-for-profit industry funds. With compulsory no-frills super products to be introduced next year, for-profit super funds have complained the selection process favours industry funds.
A draft report from the commission, to be published today, echoed some of these concerns, calling for an overhaul in how funds are chosen. Instead of unions and employers choosing default funds, the commission said Fair Work Australia or another independent body should choose which funds qualify.
"Australian employees would benefit from a default superannuation fund selection process that is contestable, transparent and provides for the regular reassessment of the most appropriate funds to be listed in awards," the commission's deputy chairman, Mike Woods, said.
The report also said the standards for My Super funds - a low cost product to be introduced from next year - would provide a "sound basis" for selecting default funds.
With about 1.5 million workers employed on award agreements, the default fund market is worth between $7 billion and $10 billion a year to the superannuation industry.
The commission said default funds had performed better than the industry-wide average, returning 6.4 per cent a year over the past eight years, compared with 5.8 per cent for all funds. Despite this better performance, it said the changes would benefit members by boosting competition between super providers.
Industry funds - which have posted stronger returns than for-profit funds - say the main criteria for selecting default funds should be their performance.
The commission said there was "no case" for a prescriptive criteria for selecting default funds, though expected investment returns were the most important issue for employers to consider.