The selection of default super funds should be removed from the industrial relations system and be replaced with a top 10 “best in show” shortlist, the Productivity Commission has recommended in its draft report.
In its draft report on the efficiency and competitiveness of superannuation, the Productivity Commission has recommended an overhaul of the process whereby default super funds are selected for employees.
Since the introduction of compulsory super in 1992, super funds have been “inextricably linked to employers and unions, with industrial awards cementing the relationship”, said the report.
Default funds are either selected by employers or included on modern awards through a selection process involving Fair Work Australia.
But the Productivity Commission’s draft report has recommended the establishment of a new independent expert that would come up with an online shortlist of up to 10 super funds.
The shortlist would be presented to young Australians when they start their first job, along with “clear and comparable information on the key features of each shortlisted product”.
It would then be up to the employee to choose one of the funds. If they fail to choose a fund within 60 days, they will be randomly allocated one of the funds on the shortlist (specifically, via a “sequential allocation” process).
The Productivity Commission has also recommended that default funds should accompany members for life, ending the practice of creating a new account each time an employee starts a new job.
“Default superannuation accounts should only be created for members who are new to the workforce or do not already have a superannuation account (and do not nominate a fund of their own),” said the draft report.
The Australian government and the ATO should continue to work towards the establishment of a centralised online service for members, the draft report added.
The report also highlighted the outperformance of the not-for-profit default super sector, which returned 6.8 per cent per annum between 2005 and 2016.
Retail funds, by contrast, returned members 4.9 per cent per annum over the same period.
SuperRatings recently published a list of the 10 top-performing balanced funds over the 10 years to 31 Match 2018.
All 10 funds on the list were industry funds with annual returns ranging from 7.1 per cent (for REST’s core strategy) to 6.5 per cent (for BUSSQ’s balanced growth strategy).
Other funds on the list were CareSuper, Equip, Cbus, Hostplus, Catholic Super, AustralianSuper, First State Super and AustSafe Super.
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