PRIVATE sector super funds face a major setback after the government rejected their push for a radical overhaul of the $7 billion-a-year market for default superannuation.
Retail super funds, including those owned by big banks, have been lobbying for sweeping changes to the system for choosing funds for workers on award wages who do not explicitly choose a super fund.
Under the current approach, employers and unions choose default funds, and the market is dominated by union-linked industry funds.
Retail funds want this scrapped, with employers given the right to choose their employees' super funds.
However, the government has bluntly rejected this option as posing "considerable risks" to the safety net for workers on award wages.
Instead it will support allowing a panel of Fair Work Australia to choose default funds, a system it says would better suit members' interests.
The Minister for Financial Services, Bill Shorten, signalled the move by releasing a joint submission to the Productivity Commission from his two departments. "We want default contributions to be put into the most secure and high-performing funds possible so Australian workers can maximise their retirement savings," he said.
Retail funds say employers should be free to choose staff funds from next year from within no-frills MySuper products, which are designed to stop excessive fees.
However, the comments from Mr Shorten signal the government will not support such a change.
The chief executive of the Financial Services Council, John Brogden, stood by his support for making MySuper products eligible for all awards. "Full and open competition is critical to ensure that employees get the best superannuation product for their needs," he said.