The new report makes a number of proposals for improving the current system, most notably that members only be placed in a default fund once to avoid the creation of multiple accounts.
Additionally, the Productivity Commission proposed four alternative default models, the first of which being an ‘assisted employee choice’ model which “leverages the competition benefits that arise when members exercise choice” but provides additional information and “nudges” members to make an informed decision.
The second is an ‘assisted employer choice’ model with employee protections, which allows employers to choose the default for their employees “as long as the default product meets some minimum standards”.
The final two, ‘fee-based auction’ and ‘multi-criteria tender’, would “incorporate a market-based mechanism into the selection of default products, with sequential allocation of members among winning products”, the Productivity Commission said.
The Financial Services Council (FSC) said the reforms were necessary and that the broad list of changes outlined in the four draft recommendations demonstrated that competition reforms were “urgently needed”.
“Superannuation is the best way for every Australian to save for retirement and all of us should be able to choose what fund is best for our needs. We urge people to engage with their super and ensure they’re not being penalised by being in a sub scale underperforming fund or unwittingly have multiple funds,” said FSC chief executive Sally Loane.
“We have long advocated for Super 2.0 – a new, modern, competitive and flexible system that will be fit for purpose and engage the next generation.”
The proposals were, however, met with resistance by both the Australian Institute of Superannuation Trustees (AIST) and Industry Super Australia (ISA), with the latter saying the proposals would mean abandoning key features of Australia’s current system “in favour of four models with features plucked from lower performing and lower ranked overseas pension systems”.
“The Productivity Commission is proposing untested changes to superannuation that could over time undermine the best-performing parts of the system while failing to address the cost and poor performance of retail funds,” ISA said.
According to ISA chief executive David Whiteley, the Productivity Commission’s proposals do not address “the systemic underperformance of funds offered by for-profit providers”.
“As requested by the Terms of Reference, the report considers dismantling the most trusted, high-performing part of our default system while ignoring the elephant in the room, which is the dismal performance of sales-driven retail funds,” he said.
“The Productivity Commission has not provided the public with iron-clad evidence that warrants dismantling a system that has delivered returns almost 2 per cent more on average each year than other funds.”
AIST chief executive Eva Scheerlinck agreed that the Productivity Commission had not provided evidence to suggest the proposed changes would benefit members.
“We note that the PC calls for a quality filter. This quality filter already exists in legislation through the Fair Work Commission process and provides a high level of consumer protection for members,” she said.
“Evidence shows that the existing default fund selection process has delivered outperformance for members. The proposal for a radical shakeup on default fund selection without even bothering to review the existing system is not only ludicrous but also inefficient.”
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