Industry Super Australia released a paper last week titled From Wallis to Murray: the new consensus tackling the default super from a behavioural economics standpoint.
The report argued that the three recent government inquiries into superannuation – the Cooper Review, the Productivity Commission Inquiry and December 2014’s Financial System Inquiry – have all “concluded that consumers need the protection of a default fund safety net”.
Commenting on the report, ISA chief executive David Whiteley argued that banks are looking to “scrap” the current selection process in order to take “a greater share of the superannuation market”.
Retail superannuation want to avoid competing on investment performance, he said.
“Instead, they want to bundle up business banking with their super products and sell this to employers,” Mr Whiteley said.
Mainstream media coverage of the comments prompted new Financial Services Council chief executive Sally Loane to write an (unpublished, to date) letter to the editor of the Australian Financial Review.
“The FSC writes to correct a claim by ISA that ‘the banks will use their market power to bundle super with business banking and lead to many employees being placed into funds with lower returns’,” Ms Loane wrote.
“ISA is wrong at law. Section 68A of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) specifically prohibits a related party, including a bank, from offering inducements to a person or an employer in return for choosing one superannuation fund over another,” she wrote.
“ISA has also failed to provide any evidence of superannuation funds or related parties offering inducements to employers. If there was evidence of inducements being offered these should be referred to the relevant authorities,” Ms Loane wrote.
Speaking to InvestorDaily, Mr Whiteley said the banks could bundle up business banking with default super in a “number of ways”.
“They could for example rely on existing business relationships. They could for example bundle business banking and default super up through technology,” he said.
After all, the big banks have invested heavily in “bundling up” various financial services for consumers, Mr Whiteley said.
“They could also do that for employers, which could make it more convenient for employers to make contributions to bank-owned super funds than industry super funds,” he said.
There are also longstanding relationships between banks and employers, Mr Whiteley said.
“Those relationships could be longstanding. That can obviously have an influence in the decisions that businesses make,” he said.
“But it may lead to employees of the enterprise being placed into a less well-performing fund,” Mr Whiteley said.
