The Financial Services Council (FSC) commissioned Rafe Consulting to investigate the “potential impacts on the Australian superannuation system, employers and employees, of the rules for selecting default superannuation funds in modern workplace awards”.
The FSC provided Rafe Consulting with commercial in-confidence data from its members.
The report found that the FWC process – using which an ‘expert panel’ will select between two and 15 default MySuper products for each modern award to apply from 1 January 2015 – would “strain the fabric” of the superannuation system.
More than 100,000 employers and over 2.5 million working Australians will be affected, said the report.
The FWC process will result in at least 1.25 million employees having to be redirected to alternate superannuation arrangements; a potential cost to impacted employees of $185 million; potential losses to affected superannuation members of $50 million; and a potential cost to impacted employers in the region of $30 million, said the report.
“In addition, this report estimates a potential cost to all superannuation funds in the region of $25.5 million and to the Government of more than $40 million arising from the FWC process,” it said.
Allowing for other stand-alone superannuation funds and employers who use master trusts or other funds not listed on a modern award, the potential total cost of the changes could exceed $400 million, according to the report.
Commenting on the report’s findings, FSC chief executive John Brogden said the default superannuation system must be reformed as a matter of “urgency”.
“These unnecessary costs to employers and employees may be incurred as early as 1 January 2015 unless the Government acts to reform the process before the FWC review is completed,” said Mr Brogden.
“The closed shop of default superannuation is a risk not just for individuals who will have lower savings in retirement as a result of less competition, but for the Government which will ultimately bear the cost of lower fund balances in retirement through paying more in Age Pensions,” he said.
