I have noticed that The Investment and Financial Services Association (IFSA), the industry body representing the major commercial players in the superannuation master trust sector, has recently been crying foul about the decision of the Australian Industrial Relations Commission (AIRC) concerning the inclusion of superannuation in industrial awards.



I suspect, from the point of view of the AIRC, the decision is basically an attempt to capture the status quo under the new IR regime. The AIRC decision, based on full consent of the industrial parties, ensures the funds which were default funds as at September 12, 2008, will continue to be default funds under the modern awards. The decision does not in any way cut across the “Choice of Fund” legislation. It is entirely appropriate that the unilateral right (and imposed obligation) of employers to nominate the default fund will henceforth be regulated. This is, after all, part of a national retirement income system, not simply a distribution mechanism for financial product providers.

IFSA and some financial planners no doubt see the new regime as advantaging some industry super funds, as more and more businesses eventually become roped in under the new awards. However, this will only occur to the extent that employers and employees do not reach an agreement on an alternative default fund.

As usual, the objectives fail to address the most important question. That is, what is in the best interests of the employees? I would have thought we have seen enough of the global financial crisis that by now everyone would have got the message that financial markets do not necessarily deliver optimal results; so any criticism of the award regime that fundamentally relies on the argument that markets should not be fettered is bound to fall on deaf ears.

In any case, the market for distribution of superannuation products is already deeply flawed by the complete lack of distinction between sales and advice. What IFSA and other proponents of commercially offered superannuation products need to address are the quality, cost and performance of these products. On that basis they will clearly have the right in the future to argue that more of these products need to be included as award default options based on a superior track record. Without first establishing such a track record, there is really no basis for complaint.

For the time being, the members of the AIRC are able to avoid close analysis of the relative merits of various funds or classes of fund by opting for the status quo. I believe that in the future they may find it impossible to avoid adjudication to at least some degree on the appropriateness of different funds. Hopefully they will have had time to acquire the appropriate skills.

 

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