Retail funds win industry awards review

The Productivity Commission has been asked by the government to review default superannuation funds in industrial awards. The review — announced by Bill Shorten and Assistant Treasurer Mark Arbib — will examine how default funds are chosen and assessed in awards, with terms of reference released to guide the process.

The review was initiated by Bill Shorten, the Minister for Financial Services and Superannuation, together with Assistant Treasurer Mark Arbib. It matters because the government wants default funds to remain in modern awards but be judged against a transparent set of criteria, which could affect which funds receive compulsory contributions from employees who don’t choose a fund.

Default superannuation funds are the funds that receive compulsory employer super contributions from employees who don’t nominate a fund. In workplaces covered by industrial awards, these default funds are currently almost exclusively not‑for‑profit industry funds.

The retail superannuation sector — dominated by banks and insurers — wants its retail funds to be able to compete with not‑for‑profit funds to become default providers in awards, rather than being excluded from that pool of default options.

Industry or not‑for‑profit funds typically have equal board representation from the union that covers the employees and from the large employers in the industry, which is a different governance model to many retail funds.

Under current arrangements, a default fund can only be added to an award through the recommendation and agreement of employer groups and unions involved in that award.

John Brogden, CEO of the Financial Services Council representing the retail sector, has described the current selection process as a 'closed shop', 'anti‑competitive' and failing to protect consumers, and he says it is 'riddled with conflicts of interest.'

The review is likely to begin next month and could run for up to eight months. For everyday investors, the review could lead to clearer, transparent criteria for default funds in awards and potentially open the door for retail funds to compete as default providers, depending on the review’s findings.