Industry Super Australia says a majority of Australians think bank-owned retail superannuation funds are focussed on making profit, not the retirement savings of members.
Default Superannuation Funds
Superannuation fees are too high, according to the Financial Services Council, with more competition among super funds needed.
Industry Super Australia says that opening up the default superannuation fund process would add red tape costing $1.8 billion.
Industry Super Australia and the Financial Services Council are engaged in a battle over which super funds can be default super funds and the manner in which they are chosen. One option is to have employers choose a super fund from an “unranked list of 120 MySuper funds.”
A report by independent think tank the Grattan Institute, calling for a competitive government-run tender to select default superannuation funds, has reignited the fight between the Financial Services Council and Industry Super Australia over default funds.
The Grattan Institute recently released a report calling for the Government to implement a tender process to select default superannuation funds, saying this could save $1 billion in fees a year.
Independent think tank the Grattan Institute says that implementing a tender process for selecting default superannuation funds would save $1 billion in fees a year.
The Grattan Institute puts the current cost of the superannuation system at $21 billion per year in fees and expenses, $16 billion relating to APRA-regulated funds and another $5 billion for SMSFs. The report, titled Super Savings, says both administration and investment fees are too high.
Industry Super Australia has obtained legal advice which says regulators have no power to seek a civil penalty from banks unlawfully offering incentives to persuade employers to switch default superannuation funds to a bank-owned fund.
“The law (SIS Act section 68A) prohibits a bank from offering business banking discounts and other incentives to employers in exchange for access to employees’ superannuation,” said David Whiteley, Chief Executive of Industry Super Australia (ISA).
Banks, and others, are allowed to offer some goods and services to encourage employers to switch the default superannuation fund for their employees.
Following the release of research pointing to major banks offering benefits to employers to encourage switching of super funds, there has been significant press coverage of the issue. Some the reporting has said that such benefits are banned, however there are some exemptions.
New research released by Industry Super Australia (ISA) shows that banks may be offering benefits to employers to encourage them to switch default superannuation funds.
The survey of 550 small and medium businesses, conducted by UMR, showed that “26% of employers surveyed said that a major bank had approached them about transferring their employees’ default superannuation to the bank’s own retail super fund in the last year,” according to the ISA.
In response to claims by Industry Super Australia that recent reviews of the superannuation system had supported the current system for choosing default superannuation funds the Financial System Inquiry has written a letter to the editor of The Australian:
Re: End default super battle, retail funds told
Industry Super Australia’s claim that “a series of reviews had already endorsed existing arrangements” for default superannuation under Modern Awards is wrong. (”End default super battle, retail funds told”, The Australian, February 5). The reviews have in fact been critical of the role of the Fair Work Commission in selecting default funds.
Industry Super Australia has pointed to a consensus among three reviews of the superannuation system to argue that the super safety net must be retained in the face of attacks by the banks. “Complexity, choice overload, low levels of financial literacy, lack of planning, procrastination and high search costs, among other… Read More »Only the very best super funds should be default funds: ISA