A significant ratio of the country’s workers are denied the right to choose where some of their pay is held, says Dr Patrick Carvalho of The Centre for Independent Studies.
A study by the Association of Superannuation Funds of Australia found that one in five Australian workers lack the right to choose where to park their super funds.
This appalling situation is the fruit of an exception enshrined in part 3A, section 32C of the Superannuation Guarantee (Administration) Act 1992, allowing backdoor exclusions to be given to enterprise agreements, workplace determinations and state-based awards, among others.
The Competition Policy Review opens the matter to further debate by recommending the exemption of awards and industrial agreements relating to “the remuneration, conditions of employment, hours of work or working conditions of employees” from sections 45E and 45EA of the Competition and Consumer Act (CCA), which forbid trade restrictions in collective contracts, arrangements or understandings.
This might suggest the review would back the continuation of exclusions — and the denial of choice.
Nonetheless, it is arguable that although the superannuation is definitely part of your remuneration, the choice of super fund provider is not.
In a parallel analogy, collective agreements can dictate paid leaves, but not where you will spend that leave time.
The solution to the super choice problem can be found in the final report of the Financial System Inquiry (FSI), which makes 44 wide-ranging recommendations on financial regulation.
Accordingly, the FSI recommendation 12 prescribes the provision to “all employees with the ability to choose the fund into which their superannuation guarantee contributions are paid”.
It is high time to implement such a recommendation.
As the formal FSI consultation process is already closed, the government should start action straightaway.
In fact, states should also follow suit and enforce the freedom of choice in their super award schemes.
There is no reason for further delay.
Let’s be clear about superannuation.
The money in your super fund account is yours. Entirely, irrevocably and undoubtedly yours.
And you should have the right to choose which super fund provider to invest your own retirement money.
No Australian government would legislate to force you to hold your money in a particular bank, and superannuation accounts should be treated the same way.
Backdoor agreements between employers and super funds are not transparent — and not always implemented in the best interests of employees.
In addition to the lack of democratic legitimacy, there are a few other issues with denying the choice of super fund provider.
First, employers might have different incentives than employees when choosing a fund. Whereas workers should value the potential returns of their super assets, taking into account super fees and performance; employers might simply attempt to reduce compliance costs and therefore not engage sufficiently in due diligence when securing super fund agreements.
Another unintended consequence relates to employees holding multiple super accounts – and paying multiple super account fees accordingly.
A multitude of fees from different providers can significantly erode superannuation balances over a life cycle, especially under a secular stagnation environment with investors struggling to find reasonable risk-adjusted returns.
Unsurprisingly, super fund member disengagement is yet another toll of the lack of ability to select a fund.
If you cannot choose or change your super provider, there is little encouragement or bargaining power to fight.
And this has a much wider implication for the whole superannuation system, as weak member-driven engagement hinders more competitive pressure on cost reductions throughout the super industry.
There has been a recent brightening of the spotlight on superannuation. And that includes the reports that the Australian Prudential Regulation Authority (APRA) and Australian Securities Investments Commission (ASIC) have started investigations into alleged inducements enticing employers to move staff into particular bank-owned super funds.
The time is ripe to examine these issues, and particularly to remove the indefensible, immoral and undemocratic lack of super choice imposed on a fifth of Australian workers.
It is your super, and should be your choice.
Dr Patrick Carvalho is a research fellow at The Centre for Independent Studies.