After a twelve-month inquiry, the Productivity Commission has submitted its final report to the government, which has over 30 recommendations including the controversial ‘best in show’ shortlist.
The commission said its decision to call for a ‘best in show’ shortlist was to empower employees to choose the best super for them.
“This new approach will support member engagement by ‘nudging’ members towards good products without forcing them to pick one. Members will retain the option to choose from the wider set of MySuper and choice products (or establish their own SMSF), and elevated ‘outcomes tests’ will help to weed out persistently underperforming products from the system,” the report read.
The report said that the shortlist would be developed by an independent expert panel who would asses fund applications for the list every four years.
“Every four years, this panel should assess applications from funds (including those already on the shortlist) on the basis of clear criteria that are focused on the fund’s likelihood of delivering strong long-term outcomes for members. Only MySuper products would be eligible for shortlisting,” it said.
However, industry groups have criticised the shortlist with the Association of Superannuation Funds of Australia chief executive Dr Martin Fahy saying it would reduce competition.
“ASFA is disappointed that the Productivity Commission has doubled down on the so called ‘top 10 best in show’ as a mechanism for allocating default super. This approach risks creating an oligopoly in default superannuation and reducing long-term competition,” he said.
The commission noted this feedback in the final report but said that the panel would be forced to judge all applications for the list equally.
“All funds would remain free to compete for members and build scale. The expert panel should also be explicitly required to create a competitive dynamic each time it selects funds for the shortlist,” it said.
The commission also backed the government’s legislation that would strengthen MySuper and create an annual outcomes test in the industry.
“The government has already presented legislation to Parliament to strengthen MySuper. This entails the introduction of an annual outcomes test whereby trustees must determine whether their MySuper product is meeting the best interests of their members and must compare their MySuper product against others in the market based on fees, returns, risk and other metrics,” it said.
The commission called for the tests to go further, saying funds should be required to obtain independent verification and that if they failed to reach the investment benchmark, they would be pulled from the super system.
“MySuper products and choice options that persistently underperform the benchmark would fail this ‘right to remain’ test. The fund would then have 12 months to remediate (such as by cutting fees) or to withdraw the investment option and move the affected members somewhere more suitable,” it said.
In a blow to Labor’s proposal, the commission recommended that a separate inquiry occur before any changes were made to the superannuation guarantee rate.
“The Australian government should commission an independent public inquiry into the role of compulsory superannuation in the broader retirement incomes system. This inquiry should be completed in advance of any increase in the Superannuation Guarantee rate,” it said.
Labor had previously announced plans to boost the superannuation contributions from 9.5 per cent to 12 per cent, which it voted to prioritise at its December conference.
Treasurer Josh Frydenberg MP welcomed the commission’s findings saying that the government would carefully look at the commission’s 31 recommendations.
“The government will carefully consider the recommendations and will await the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s Final Report before finalising our response to the Productivity Commission’s report,” he said.
Mr Frydenberg said that many of the government’s super reforms currently before parliament were endorsed by the report including the automatic consolidation of low-balance inactive accounts and better reporting of expenses to improve transparency.
“It is time the Labor Party stopped blocking these amendments, listens to consumer advocates, independent experts and support what the commission calls ‘must have’ common sense reforms that put the interests of members first,” he said.
