The Financial System Inquiry recommended a ‘formal competitive process’ be established to select default superannuation funds, unless a review by 2020 concludes that competition and efficiency was improving in the superannuation system.
“We agree the existing system is not as efficient as it should be an a review of the system is entirely appropriate,” said Mercer.
“However we believe much of the current inefficiency in the system is driven by inappropriate legislation.”
“If the industry is to become more efficient, legislative change is needed to enable the industry to provide a more efficient and cost effective product before the time of any review.”
One area that Mercer says is holding back competition in the superannuation industry is the selection of default super funds.
Mercer notes that it is already a legislative requirement for default funds to be MySuper funds, saying this “ensures all default members will be in a fund which has satisfied APRA’s filtering requirements.”
“Despite this, some people have raised concerns that the repeal of the Fair Work default fund provisions will enable employees to remain in an unattractive default fund even though it is a MySuper.” Mercer says this may occur with smaller employers, but is unlikely for large employers as they can devote resources to assess different superannuation funds.
Mercer says a “possible solution” would be to limit the grandfathering arrangements for employers with less than 100 employees. Such employers choice of default funds would be restricted to MySuper funds which had achieved an “appropriate” rating from a superannuation ratings house, unless the employer had obtained “professional advice in relation to the suitability of the fund.”
“We consider such an approach to be far superior to the Expert Panel approach in the Fair Work Act with fund assessments being made by those who are independent as well as being experts in the field,” said Mercer.
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