In a submission to the inquiry into superannuation by the Productivity Commission, the ISA addresses concerns over employees shifting between industries and funds, taxing for total and permanent disability (TPD) benefits, member engagement and interaction with the Single Touch Payroll.
The resolution of the commission’s 12 month inquiry into the competitiveness and efficiency of Australia’s superannuation system is creeping closer, with the expected timing of its final report to be given to the government in late December. The inquiry has received 232 submissions to date.
ISA said that under an auto-consolidation system, the proportion of system assets that would move because of members switching industries appears likely to be small and unlikely to generate significant administration and liquidity costs.
Industry change was mostly found to occur across younger employees with relatively small balances, according to the report. The majority were aged 29 years or younger accounting for 14 per cent of the superannuation balances for all industry changers.
The draft report from the commission suggested that more member engagement is desirable, suggesting nudging and a proposed online short-list.
“Presumably one measure of this increased engagement would be many more members moving more frequently between funds and products,” the ISA noted in its submission.
“The costs of this movement will likely take many forms: reduced investment in illiquid assets, increased marketing spend to secure more mobile members, and the higher fees and lower returns associated with many choice products.”
The ISA has asked for a comparison of costs in a choice driven model for funds against one based on auto-consolidation.
The association also does not support members being defaulted into one fund for life, saying that there is a great risk of disengaged and lowly informed individuals being sold, nudged or defaulted into poor quality products.
“Disengagement is rooted in low financial literacy and cognitive limitations, further compounded by the complexity of the superannuation system, routine regulatory change and the ‘confusion marketing’ strategies of many retail funds and SMSF providers,” the ISA said in its submission
“Poor decision making cannot be solved by simply nudging people into making choices and offering them more dashboards.
“Any quantitative increase in engagement by such means will be superficial, reflecting the design of the system rather than any real increase in the capacity of employees to make better choices.”
The ISA noted the rolling of prior accounts into current ones can create a problem for TPD purposes, citing pending legislation for inactive accounts, a ‘best in show’ shortlist or marketing from a bank.
It also does not support the iteration of the Single Touch Payroll system currently being implemented by the ATO. The body says one of the flaws with the current design encourages employees to make a choice of super, while failing to provide essential information to help guide that choice.
The ISA had previously proposed an online ATO platform for choosing super, with employees being defaulted into funds subjected to a quality filter applied by the Fair Work Commission. The system would allow staff to join another fund if they wished.
“Given the negative consequences for the public interest of poor fund performance, it may not be appropriate for a public facility to facilitate employees joining an underperforming non-FWC approved fund,” the submission said.
“Funds who have not been approved by the FWC could of course market their products to employees, subject to the ‘better-off test’ or ‘earned profits requirement’ outlined in our main submission.”
ISA had issued its main submission in July following the release of the Commission’s draft report, which was concerned with the nature of employment trends and auto-consolidation.
