Small employers shouldn’t have to choose default super funds: Mercer

Smaller employers should not have to choose default super funds for employees, Mercer has told the Productivity Commission.

The Productivity Commission is conducting an inquiry into alternative models for setting default super funds. The consulting firm Mercer, in its submission to the inquiry, says it is “essential” that larger employers – 20 or more employees – be responsible for selecting default funds, but this should not extend to small employers.

“This obligation is consistent with the entity’s obligations as an employer and recognises that many large employers have the resources to conduct tenders for customised MySuper offerings with lower fees and, where appropriate, insurance arrangements designed specifically for their employees,” says the Mercer submission.

However Mercer recommends that smaller employers, unless they choose to select a default fund, would be able to have a default fund chosen for employees by the ATO Small Business Superannuation Clearing House (SBCH).

The SBCH is limited to employers with 19 or fewer employees, the same level at which Mercer sets this default super option.

Under the plan employees would be randomly assigned to one of 15 to 20 default funds. These funds would be determined by a ‘filter’ applied by the Australian Government Actuary, with the support of an “expert independent advisory committee”.

“We consider the filter determined by the Australian Government Actuary, in consultation with an independent committee, should be multi-pronged and have regard to the total fees, investment capabilities (including scale), performance (including net returns) and insurance offerings,” says Mercer. The list would be reviewed every five years.

The next step in the Productivity Commission inquiry is the release of a draft report in March 2017, with the final report due in August 2017.

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