Private funds reeling after super revamp rejected

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.

By InvestSMART · 23 Aug 2012

By InvestSMART ·
23 Aug 2012

Comments

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.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What overhaul did retail super funds propose for default superannuation?

Retail super funds, including those owned by big banks, wanted to scrap the current system and allow employers to choose their employees' default super funds from no‑frills MySuper products. The idea was to open up competition and let employers pick a staff fund for workers who don't actively choose a super fund.

Why did the government reject the retail funds' proposal to let employers choose default funds?

The government rejected the proposal because it said giving employers that power would pose "considerable risks" to the safety net for workers on award wages. Minister Bill Shorten signalled the decision in a joint submission to the Productivity Commission, saying default contributions should go into the most secure and high‑performing funds to help workers maximise retirement savings.

What alternative approach will the government support for selecting default super funds?

Instead of letting employers choose, the government will support allowing a panel of Fair Work Australia to choose default funds. Officials say this panel approach would better suit members' interests and help protect the safety net for award‑wage workers.

How large is the default superannuation market at the centre of this debate?

The article says the default superannuation market involved is about $7 billion a year, so changes to who selects default funds could have significant implications for that market.

What are MySuper products and why do retail funds want them used for defaults?

MySuper products are described in the article as no‑frills superannuation options designed to stop excessive fees. Retail funds argue employers should be allowed to select staff funds from MySuper products so employees get affordable, competitive default options.

How does the current default system work and who currently dominates it?

Under the current approach, employers and unions choose default funds for workers who don't pick a fund. The market is dominated by union‑linked industry funds, which has prompted retail funds to lobby for change.

What did the Financial Services Council and CEO John Brogden say about the proposal?

John Brogden, chief executive of the Financial Services Council, backed making MySuper products eligible for all awards. He said full and open competition is critical to ensure employees get the best superannuation product for their needs.

What does this decision mean for everyday investors who rely on default super contributions?

For everyday investors on award wages, the government's stance means employers are unlikely to gain the new right to pick default funds. The move toward a Fair Work Australia panel and the government's focus on placing contributions in secure, high‑performing funds is intended to protect members and help maximise retirement savings, rather than open defaults to employer selection.