The Association of Financial Advisers (AFA) has expressed disappointment with the final report from the Productivity Commission inquiry into default superannuation funds.
While the Gillard government has this week pushed its credentials as delivering reforms that boost Australians’ superannuation savings, both the AFA and opposition have added their voices to that of the Financial Services Council in criticising the government.
Fox and hounds
“The Productivity Commission has backed down from the strong pro-competition, pro-choice and pro-transparency position they took in their interim report and appear to have given in to pressure from the Minister for Financial Services and Superannuation Bill Shorten,” said AFA president, Brad Fox.
“The Productivity Commission set the industry up with high expectations only to let everyone, especially Australian workers, down.”
Predictably, the opposition took up the cudgel, accusing Shorten of bullying the Commission at the behest of his friends in the union movement.
“The current process for the selection of default funds under modern awards, initiated by this government and run by Fair Work Australia, is a national disgrace,” said Senator Mathias Cormann.
“It is an anti-competitive, closed-shop arrangement, which lacks transparency, is littered with inherent conflicts and inappropriately favours union-dominated industry super funds.
“Even Labor had to finally recognise that in its 2010 pre-election policy on superannuation where they promised the introduction of an open, transparent and competitive process to select default funds under modern awards.”
Lack of faith
In August, Shorten publicly supported a submission to the Productivity Commission compiled by two of his own departments – Treasury and the Department of Education, Employment and Workplace Relations – which advocated for the continued involvement of an expert panel with Fair Work Australia (FWA).
“We are very concerned about the influences on superannuation policy and we question, as we have previously, the appropriateness of FWA making decisions with respect to the selection of superannuation funds in modern awards,” said Fox .
“FWA has been running the system to this point and it has not worked.”
He added that is was difficult for the superannuation industry to have confidence in FWA because of “a widely held view that FWA lacks independence”.
“The expert panel will be dominated by FWA, it will be chaired by the FWA president and FWA will appoint the part-time members. How can the industry have confidence in a solution that is back to the past and, more importantly, how can workers have faith in superannuation?” asks Fox.
“At the end of the day, if the government is setting the criteria for MySuper funds, then any fund meeting that criteria should be able to be selected as the default fund for a workplace. By keeping superannuation as part of the industrial system and giving the power of selection to FWA, the value of competition is being lost to what is potentially a closed-shop solution.”
Enhancing comparability?
The Commission’s report notes that existing default arrangements have provided market stability with the net returns of default funds of 6.4 per cent compared with 5.5 for non-default funds.
“This report also endorses the government’s MySuper and financial-advice reforms, including the provision of intra-fund advice, which the PC considers important in equipping members with the skills and knowledge to make decisions about their super”, said Shorten.
“The report notes that the disclosure requirements for MySuper products will enhance comparability between products and are expected to improve understanding of superannuation product offerings.”
Shorten added that the government would give careful consideration to the report and provide a detailed response to its recommendations.
