The Productivity Commission is to be commended for its call for submissions on alternative default models, and the ensuing review process that has followed.
In March, we will know the findings of this work, and the report is sure to provide compelling reading for the financial services industry.
The Workplace Super Specialists of Australia (WSSA) believes it is astute that following the introduction of such a sweeping reform such as the introduction of MySuper on 1 January 2014, that its merits be debated.
That said, the WSSA firmly believes MySuper is a suitable model, so much so that we would like to ensure all Australians have access to all funds, a centralised list if you will, that is not influenced or swayed by the modern award system that can stipulate 122 different contained lists for some employees.
Any MySuper fund should be able to be used by an employer as a default fund, and qualification as a default fund should only require one level of filtering (i.e. no panel selection or other award based selection is required).
Employers should also play a strong role in the selection of default funds, choosing them on behalf of their employees.
This would create connections for employees with their super and encourage them to take more control of their super contributions.
Given the WSSA’s high exposure to workplace super, we have great exposure to the views and concerns of employers and employees.
Our members (financial advice firms) provide services and education to employers and their employees in the workplace daily.
It puts us in dress circle seats in terms of knowing what is working and what is not in the world of super.
So when it came to making our submission to the aforementioned Productivity Commission, we wanted to keep it focused on three main points:
- MySuper needs more time to be fairly assessed, and therefore should be left alone;
- Employers are best placed to decide on default funds for their employees; and
- Stripping out awards will eliminate complexity and allow innovation and competition.
We want to see MySuper blossom to what it was intended to be – a vehicle that encouraged competition and challenged our industry to be better.
And of course, the benefits of a healthy superannuation system (including insurance benefits within super) are far reaching, reducing the reliance on social security and, particularly, the age pension.
The entire super system should operate in the best interest of super fund members with their financial outcome the most important focus.
Guiding all these beliefs is that MySuper has not been given much of a go, it’s been only three years since the introduction of MySuper funds and the transition of existing default super balances will not be complete until 30 June 2017, it has hardly been long enough.
Given this immaturity, MySuper funds have not been able to achieve significant scale.
As an extension of this point, their three-year investment performance can hardly be compared given they are long-term investments.
Finally, it remains very difficult for members to compare the features, benefits and performance of MySuper funds.
As mentioned earlier, the WSSA strongly supports the MySuper model. As stated in our submission, "The current MySuper model (if it operates on a level playing field where any MySuper fund can be a default fund regardless of awards), allows for and promotes open competition between funds. It allows product innovation to occur."
One of the challenges our association has in the current system is the lack of consumer-driven competition, a direct result we believe of the Modern Award regime.
However, the solution is easy – allowing MySuper funds to be an employer’s default super fund will resolve this.
Introducing competition to the default fund market was one of the purposes of MySuper, one we believe is yet to be delivered.
Again, in our submission, we believe in this model, "the cream will rise to the top".
As it states, "Employers and their employees will be able to select from funds with proven track records of performance after fees.
“This open architecture will provide system stability as any fund provider can compete on equal terms rather than this being the domain of the chosen few, and new entrants will be able to enter the market.”
In this way, the employer is best placed to select the default super fund on behalf of its employees.
This is because the factors influencing fund selection vary too widely within an award and it makes sense that fund selection should be based on the requirements of the workforce.
WSSA is not in favour of a centralised default system for several reasons.
As already stated, not all the MySuper reforms are in place and no product has reached maturity. Removing all competition would only lead to the demise of most MySuper funds.
Our recommendation to the Productivity Commission is to call for the removal of default funds from employment awards, a move we believe will simplify the process and strengthen the overall superannuation system.
We believe the current Choice model should continue allowing each employee to choose the product that best accords with their preferences and facilitates competition on both price and product features.
It would continue to sit well along a MySuper default model.
As stated in the conclusion to our submission, “An employer default fund with a MySuper fund filter regardless of awards for individuals who do not or are incapable of making a choice seems to provide all the required outcomes and removes layers of complexity from the system.”
Douglas Latto is the chief executive officer of Workplace Super Specialists Australia.
