In its October 2015 response to the Financial System Inquiry final report, the Turnbull government promised to task the Productivity Commission with “immediately develop[ing] and releas[ing] criteria to assess the efficiency and competitiveness of the superannuation system”.
The terms of reference for the Superannuation Competitiveness and Efficiency Review, released on Wednesday, allow the Productivity Commission to have regard to:
- operational efficiency, where products and services are delivered in a way that minimises costs and maximises value, which can be enhanced by competition and innovation from new entrants and incumbents
- allocative efficiency, where the system allocates resources to the most productive use and optimally allocates risks
- dynamic efficiency, including services to members, where the system induces the optimal balance between consumption and saving over time
- the extent to which the system encourages optimal behaviour on the part of consumers, including consideration of the learnings from behavioural finance.
The Productivity Commission will also have the scope to examine alternative models for a formal competitive process in the default superannuation market in Australia.
“These model(s) would provide viable alternatives for the government’s consideration, depending on the outcomes of the review of the efficiency and competitiveness of the superannuation system, which the Productivity Commission will be asked to undertake following the full implementation of the MySuper reforms,” according to the terms of reference.
“The developed model(s) should enhance efficiency in the superannuation system in order to improve retirement incomes, including through optimising long-term net returns to members, and build trust and confidence in funds regulated by the Australian Prudential Regulation Authority (APRA).
“The models developed should consider default fund selection across the superannuation system as a whole,” according to the terms of reference.
The Productivity Commission may also consider auction, tender and other types of competitive processes – including those used in Chile, New Zealand and Sweden.
The final research report is expected to be handed to the government in November 2016 and publicly released “shortly after”.
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