ASIC has warned about the issues with employers choosing default super funds for employees, including around incentives and the offering of inducements.
“Although employers currently have the legal responsibility to make a decision in relation to the default superannuation product, employers are required to neither select a fund that is in the best interests of their employees nor to put their employees’ interests ahead of their own in selecting the fund,” said ASIC in it’s submission to the Productivity Commission. The Commission is conducting an inquiry to determine alternative models for setting default super funds.
“Employers may also have an incentive to make a single broad decision as to default fund and to not attempt to select different defaults for different employees based on their relevant personal circumstances,” says ASIC.
The regulator is also concerned about the possibility of employers receiving inducements to encourage picking a particular super fund as a default fund. In 2015 Industry Super Australia released research indicating that banks may be offering benefits to employers to encourage them to switch default super funds.
The ASIC submission says that: “Section 68A of the SIS Act prohibits the trustee of a superannuation fund, or an associate of the trustee, from providing or withholding a good or a service to a person on the condition that one or more of the person’s employees becomes a member of the superannuation fund, with some exceptions.”
However ASIC notes that a breach of s68A is not an offence, but “only gives rise to the creation of a statutory right for an aggrieved individual to commence a civil proceeding for the recovery of losses”.
“ASIC has also published guidance for employers that illegal inducements from superannuation funds may take any form, and include corporate hospitality, holidays, or discounted rates on products or services. We have also advised employers to make sure any incentives do not distract them from making an informed decision, and to focus on what’s best for their employees.”
However, ASIC says the “real prospect remains” that employers will select a default super fund as a result of an inducement, including lawful inducements.
“Further, there is no equivalent of s 68A of the SIS Act in relation to employee choice – it is not illegal for a superannuation fund or its associates to give benefits to an employee as an incentive for them to choose their fund, ASIC has encouraged fund trustees to be cautious that the use of these incentives does not distract a member from making an informed financial decision about their products and services.”
The submission says that employees, if they were required to choose a super fund for themselves, would have more information about their individual circumstances than any other decision maker. Though “they may lack the knowledge or expertise to identify and assess the information they possess to make a decision that is their best interest”.