IN A major blow to private sector super funds, the Productivity Commission has backed away from a push to give bosses more discretion when choosing default super funds for some of the nation's lowest paid workers.
Under today's laws, more than $7 billion a year of retirement savings of workers on award wages flow into funds that are chosen by unions and employer groups.
For-profit funds complain they are locked out of the market by outdated industrial rules, and have called for more competition in how default funds are chosen.
After a nine-month review, the commission yesterday reaffirmed its criticism of the default super regime, saying employees' interests were not always served and the system was "insufficiently transparent".
However, it also scrapped a draft recommendation to give employers more discretion in choosing a default fund, saying the idea was impractical.
Instead, it recommended Fair Work Australia decide which funds could be listed as default funds.
The chief executive of the Financial Services Council, John Brogden, slammed the commission's change of heart, saying it had "failed to recognise that superannuation is not an industrial matter".
"This report is a bitter disappointment and a missed opportunity," Mr Brogden said. "Default superannuation will remain the domain of the industrial system."
Mr Brogden represents retail funds, which are keen to manage a bigger share of the lucrative default super market.
Superannuation Minister Bill Shorten sparked controversy during the review when two departments that report to him lodged submissions arguing against giving employers more power to choose funds for their staff, with critics complaining that Labor was trying to influence the commission. Yesterday, Mr Shorten said he would consider the report carefully before responding.
The Coalition's spokesman for financial services, Mathias Cormann, accused the government of "bullying" the Productivity Commission so that the system favoured union-linked industry super funds.
The criticism comes despite government departments making submissions to the commission under the Coalition, and the commission's reputation for being fiercely independent from government.
David Whiteley, the chief executive of the Industry Super Network that represents union-linked funds, said the report recommended a "transparent, open and merit-based system". The commission said default funds had performed better than the industry-wide average.
Frequently Asked Questions about this Article…
What did the Productivity Commission conclude about the default super funds system?
After a nine-month review the Productivity Commission criticised the default super regime, saying employees' interests were not always served and the system was "insufficiently transparent." It scrapped a draft recommendation to give employers more discretion in choosing default funds and made other recommendations instead.
Will employers get more power to choose default super funds for staff?
No. The commission abandoned a previous draft idea to give employers greater discretion, calling it impractical. Instead it recommended Fair Work Australia should decide which funds can be listed as default funds.
How much money flows into default funds chosen by unions and employer groups?
Under current rules, more than $7 billion a year of retirement savings from workers on award wages flows into funds chosen by unions and employer groups.
Why do for-profit or retail super funds want access to the default super market?
Retail and for-profit funds say they are effectively locked out of the market by outdated industrial rules and have argued for more competition in how default funds are chosen. Retail fund representatives want a bigger share of the lucrative default super market.
What was the reaction from industry groups to the commission's change of approach?
John Brogden, CEO of the Financial Services Council who represents retail funds, called the report a "bitter disappointment" and said it failed to recognise superannuation is not an industrial matter. By contrast, David Whiteley of the Industry Super Network welcomed the recommendation for a "transparent, open and merit-based system."
Did the review say how default funds have performed compared with the wider industry?
Yes. The Productivity Commission noted that default funds had performed better than the industry-wide average.
Was there controversy involving Superannuation Minister Bill Shorten during the review?
Yes. The review attracted controversy when two government departments that report to Bill Shorten lodged submissions opposing greater employer power to choose funds, prompting critics to say Labor was trying to influence the commission. Mr Shorten said he would consider the report carefully before responding.
Who will decide next steps for listing default super funds and what should investors watch for?
The commission recommended that Fair Work Australia decide which funds could be listed as default funds. Investors and members should watch for any government response to the commission's report and any future decisions or rule changes from Fair Work Australia.
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