The superannuation sector has issued a lukewarm response to the Productivity Commission’s draft recommendations that would scrap the current default fund arrangements.
The Productivity Commission’s (PC) draft report on the efficiency and competitiveness of superannuation has recommended the current default fund selection process be replaced with a top 10 “best in show” shortlist.
The shortlist, which would be presented to young Australians upon starting their first job, would be drawn up by a new panel of independent experts.
Once a fund had been chosen (or randomly defaulted into, if a choice is not made in 60 days), the member will retain it throughout their career, according to the PC draft report.
Association of Superannuation Funds of Australia chief executive Martin Fahy said that the proposed change would “dramatically change the retirement funding landscape, and raises questions with respect to innovation, competitive intensity and diversity”.
Industry Super Australia chief executive David Whiteley also rejected the idea.
“Industry super funds have long supported a merit-based selection process of default funds. This is currently the role of the Fair Work Commission and is in the best interests of members. Superannuation is deferred wages and a condition of employment,” Mr Whiteley said.
“To dismantle the Fair Work Commission process in favour of an unproven new government agency and require young workers to choose their super fund for life is high risk for younger members.”
The idea of a “super fund for life” also ignores lessons from behavioural economics, Mr Whiteley said.
“Younger workers are most likely to be disengaged from their long-away retirement and the proposal assumes an informed choice,” the ISA CEO said.
The Financial Services Council (FSC), which represents the retail superannuation sector, expressed concerns about the new independent body becoming politicised.
FSC chief executive Sally Loane said: “Giving consumers just one default fund that they can carry from job to job will also address the chronic and massive problem of multiple accounts, which still afflicts our system to the great detriment of consumers.
“When it comes to performance, in a new, modernised system that has a level playing field, all funds will be able to compete equally.
“Poorly performing funds must lift their game and put the interests of consumers first. The best funds, whether retail, industry or corporate, have nothing to fear from competition.”