Though many more people can choose which superannuation fund receives their employer contributions since the introduction of super choice, many still can’t due to the exemptions from super choice relating to enterprise agreements and state-based awards.
The trade union Royal Commission is likely to recommend that choice of super fund be significantly extended. The final report of the Financial System Inquiry (FSI), which the Government is currently considering, recommended:
Choice of fund
Provide all employees with the ability to choose the fund into which their Superannuation Guarantee contributions are paid.
This recommendation is opposed by unions and some industry superannuation funds.
The ACTU doesn’t support the proposed changes, saying “if implemented, this recommendation would significantly increase the risk that more employees will invest their contributions in superannuation products that are not in their best long-term interests.”
In a submission in response to the FSI final report the ACTU said that “enterprise agreements allow workers to collectively decide which provisions relating to choice of superannuation fund are most appropriate to their industry and workplace.”
“We know that across much of the working population financial literacy is generally low and informed engagement with superannuation is rare. The advocacy of unlimited choice in this context will generate costs and risks to employees that the FSI appears indifferent to.”
Also is a submission TWUSUPER, established by the Transport Workers Union of Australia, said that it was in the members’ best interest for superannuation arrangements “to be part of the industrial relations landscape.”
“It is therefore appropriate that superannuation entitlements continue to be governed by enterprise agreements.”
The Australian Institute of Superannuation Trustees (AIST), representing industry, corporate and public-sector superannuation funds, also made a submission rejecting the FSI super choice recommendation.
“AIST disagrees with the underlying assumption of the Final Report that choice of fund will result in members becoming more engaged and making decisions that are in their financial best interests, and that this benefit should therefore be made available to all superannuation fund members. The experience of the past decade does not support this.”
However not all industry super funds oppose extending super choice, with CBUS Super, the Construction & Building Industry super fund, lending “qualified support to the recommendation.”
Though CBUS did say the FSI super choice recommendation “further implies that ‘choice’ is somehow not being exercised through the democratic processes of making an enterprise agreement.”
“The broader question of the types of protections that would be in place for consumers exercising choice remains.”
Industry Super Australia (ISA) also gave qualified support to the FSI recommendation. “ISA agrees in principle that everyone should be able to choose where their SG contributions go to.”
However ISA also says “there is clear evidence that choice is one of the reasons why the cost of the Australian superannuation system is higher than other countries.”
“This is because the availability of choice has resulted in an increase in retailisation activities. Offering choices in financial services leads to expensive activities to attract consumers such as advertising, sales, customer interaction, and administration.”
The Association of Superannuation Funds of Australia (ASFA) supports the FSI recommendation in principle, but “is cognisant of specific circumstances where providing full choice may result in an impractical or costly outcome,” such as to members of defined benefit funds.
The Royal Commission into Trade Union Governance and Corruption is also investigating the appropriateness of limiting choice of super funds.
In a new discussion paper the Commission says there exists the “potential for coercive conduct and conflicts of interest” with regard to superannuation funds.
“This is because of the institutional links between trade unions and industry superannuation funds,” said the Royal Commission.
“In most cases, half the members of the board of an industry superannuation fund are nominated by unions and the other half nominated by employers. Industry superannuation funds pay substantial sums to the unions with which they are associated including directors’ fees, reimbursement of director’s expenses, office rental, advertising expenses and sponsorship.”
The Royal Commission asks why the exemptions to choice of super fund should not be repealed and if unions should continue to be able to “negotiate for terms in an enterprise agreement which specify a specific default superannuation fund with financial links with the union negotiating the agreement.”
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