The Government has released the Terms of Reference for two Productivity Commission reviews into the efficiency and competitiveness of the superannuation system and alternative methods for allocating default fund members.
“The Australian Government has asked the Productivity Commission to undertake a study to develop criteria to assess the efficiency and competitiveness of the superannuation system, and a public inquiry to develop alternative models for a formal competitive process for allocating default fund members to products,” says a statement on the Productivity Commission website.
“The Commission is required to complete the study within nine months, and the inquiry within 18 months of receiving the Terms of Reference.”
“This review is an important step in implementing the Government’s response to the Financial System Inquiry and helping Australians have a better standard of living in retirement,” said Treasurer Scott Morrison.
As part of the response to the recommendation of the Financial System Inquiry the Government said it would “we will immediately task the Productivity Commission to develop efficiency metrics for the superannuation system and develop alternative models for allocating default contributions.”
“Following the full implementation of the MySuper reforms, scheduled to take place by 1 July 2017, we will further task the Productivity Commission to review the efficiency and competitiveness of the superannuation system, drawing on its work on the assessment criteria and alternative models,” said Mr Morrison.
The Terms of Reference says, when examining alternative models for allocating default fund members, the Commission should consider “the strengths and weaknesses of competitive processes used internationally, such as Chile, New Zealand and Sweden, as well as those used in large corporate tenders by the Northern Territory Government and in other jurisdictions.”
Update: the Productivity Commission has released an issues paper on Superannuation Competitiveness and Efficiency.
Review must put public ahead of banks: Industry Super Australia
Industry Super Australia said the Productivity Commission review “must put the financial interests of the public ahead of the commercial interests of the banks once and for all by creating a ‘safety net’ for the millions of Australians that rely on the default fund selected by their employer”.
“Given the importance of superannuation to the quality of life of all Australians and its economic potential, the selection of default funds must be transparent and merit based. Super funds must be judged on the long term net returns delivered to members,” said Industry Super Australia Chief Executive, David Whiteley.
“Industry super funds support the current merit based system designed by the Productivity Commission in 2012, which provides a safety net for workers that do not choose their own fund. This process is opposed by the habitually under-performing bank-owned super funds.”
“The public will have no doubt that the scandal prone banks will push hard to scrap the safety net of high performing default super funds and replace it with a system designed to suit their vertically-integrated business model.”.
Review should put spotlight on high fees: AIST
AIST said the review is a “timely opportunity to put the spotlight on the high fees and the underperformance of some funds, particularly in the Choice environment”.
AIST CEO Tom Garcia said: “We need to recognise that improving super efficiency necessarily means a holistic review of the entire system.”
“We’ve seen fees reduce significantly in the MySuper environment but they have barely moved in the Choice environment.”
Room for improvement, says ASFA
“There is always room for improvement, but it’s important to start by recognising what our system does well,” said ASFA CEO Pauline Vamos, responding to the release of the Terms of Reference.
“We need to make sure that the way we evaluate the system is fair, and that we are measuring the right things in terms of efficiency. For example, we can’t assess the efficiency of the industry effectively unless we exclude external forces like economic conditions and the broader tax and regulatory environment.”
SMSF Association welcomes Productivity Commission process
The SMSF Association (SMSFA) has “warmly welcomed” the announced Productivity Commission review.
“We view this review process, which was recommended by the Financial System Inquiry, as an opportunity to ensure that our superannuation system continues to meet the needs of Australians,” said the SMSFA.
“Although there is no doubt our superannuation system is robust, as evidenced by being ranked third in the world, it is important to continuously evaluate it and find ways to improve it.
“This is especially important for those who are least engaged with their superannuation and are placed in default funds by their employers.”
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