MySuper a step in right direction
At first blush it is hard to see what all the fuss is about.
Who could argue that superannuation funds should not have boards with independent directors? And who could argue that employers should not be free to choose any super fund as their default fund - the fund for their employees who do not exercise their right to choose a fund?
But make no mistake, the stakes are high. That is because more than 80 per cent of employees simply sign up to their employer's default fund when starting a new job.
That is why, in the $1.7 trillion superannuation industry, where most employees are likely to remain uninterested in their super, it is crucial who becomes the default fund provider.
The retail funds, chiefly those run by the banks, have been locked out of providing super for more than 1.5 million employees who are covered by industrial awards. Under awards, the default fund is named and often it is a not-for-profit fund such as an industry fund. As it has turned out, that has mostly been an excellent arrangement for workers covered by awards. Over almost all time periods, and certainly over the longer term, industry funds have outperformed their retail fund rivals.
Had we had an open shop on default funds, workers would have far less in their superannuation savings accounts.
There is some evidence that the performance gap between not-for-profits and retail funds is closing, but the gap remains. Following a report into the matter by the Productivity Commission, the previous government planned to have a panel at Fair Work Australia recommend up to 15 funds named in each industrial award from which employers could choose.
But the Coalition, after consultations with the banks and their representative associations, wants employers with employees who are covered by industrial awards to be able to choose the default fund from any one of the roughly 100 super funds that have "MySuper" status.
From the start of next year, compulsory super contributions, where no choice is made, will have to go to a MySuper default option. To receive the MySuper tick from the regulator, a fund needs to be low cost and commission free, among other things.
MySuper is a big improvement in protecting the interests of disengaged fund members.
It means, for example, retail funds will no longer be able to have commissions paid out of members' accounts to cover financial advice that the members may never have received.
But MySuper status alone says nothing about whether the MySuper fund is well suited to the needs of a particular workforce.