Default superannuation funds in modern awards

Inquiry report

Released 12 / 10 / 2012

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Key points
Contents

Default superannuation arrangements for those employees who derive their default superannuation product in accordance with modern awards have provided market stability, and net returns of default funds have generally exceeded those of non-default funds. However, the arrangements could be improved.
The primary principle governing default superannuation arrangements for modern awards should be the promotion of the best interests of employees.
- The selection of default products for awards should be merit rather than precedent based, and should encourage improved performance through competition.
The criteria that the Australian Prudential Regulation Authority will use for MySuper product authorisation provide a first filter for the selection of products.
The Commission recommends a set of non-prescriptive factors to be considered as a second stage 'quality filter' when selecting default products for modern awards.
- The factors relate to: investment objectives and performance (as primary factors); fees and costs; governance practices (particularly mechanisms in place to deal with conflicts of interest); insurance; intra-fund advice; and administrative efficiency.
The process for the selection and ongoing assessment of default products in modern awards should be reformed. Decisions on the listing of default products should be made by a new Default Superannuation Panel within Fair Work Australia (FWA).
- The panel should consist of the FWA President (or delegate) and an equal number of full-time members of the tribunal and part-time independent members appointed for their expertise in finance, investment management or superannuation advisory services.
- The part-time members should not be representatives of organisations or parties to awards, but should be appointed as independent members based on expertise.
Superannuation funds should be given standing to apply to, and be directly heard by, the panel, in order to have their products assessed for listing in modern awards. The panel should transparently assess cases on their merits, using the factors identified by the Commission, and any other factors deemed relevant by the panel.
The panel should list all MySuper products for each modern award that meet the factors for consideration (which may prove to be a long list). No express limit should be placed on the number of products that may be listed in any given modern award.
- The panel should identify in each modern award, wherever possible, a small subset of those listed products judged as best meeting the interests of the relevant employees.
The panel should conduct ongoing assessments and undertake a periodic wholesale reassessment of the products listed in modern awards.
The process should apply at least for the medium term, given the uncertainty regarding the number, mix and quality of MySuper products to be offered from 2013.
- The process should be reviewed in 2023 and this review should include consideration of the appropriateness of allowing employers to select any MySuper product as a default superannuation product.

Preliminaries
- Cover, Copyright, Letter, Terms of reference, Contents and Abbreviations
Overview - including key points
Recommendations
Chapter 1 About the inquiry
- 1.1 Background to the inquiry
- 1.2 What has the Commission been asked to do?
- 1.3 The Commission's approach to the inquiry
Chapter 2 Default superannuation funds in modern awards
- 2.1 Default superannuation funds as part of Australia's
  superannuation system
- 2.2 Australia's industrial relations system
- 2.3 Superannuation in awards
Chapter 3 Conceptual framework
- 3.1 Potential impediments to meeting the best interests of members
- 3.2 The Stronger Super reforms
- 3.3 Framework for assessing the case for further reform
Chapter 4 Investment performance
- 4.1 Investment strategies and objectives
- 4.2 Investment performance
- 4.3 Fees and costs
- 4.4 Scale
Chapter 5 Governance and transparency
- 5.1 The importance of good governance
- 5.2 The Government's response to the Cooper Review's governance
  recommendations
- 5.3 Superannuation board governance
- 5.4 Board tenure and renewal policy
- 5.5 Managing conflicts of interest
- 5.6 Flipping of members
Chapter 6 Other potential criteria
- 6.1 Insurance
- 6.2 Financial advice and member education
- 6.3 Industry connectedness
- 6.4 Administrative efficiency
Chapter 7 Performance of the default superannuation fund selection system
- 7.1 The current fund selection process
- 7.2 Meeting the (relevant) employees' best interests
- 7.3 Contestability and competition
- 7.4 Transparency
- 7.5 Procedural fairness
- 7.6 Regular assessment
- 7.7 Minimising regulatory burden
- 7.8 Market stability
- 7.9 Consistency with other policies
- 7.10 Overall assessment of the current process
Chapter 8 Reforming the selection process
- 8.1 Participants' views — Option 1
- 8.2 Participants' views — Options 2, 3 and 4
- 8.3 Commission's view — Option 1
- 8.4 Commission's view — Option 2
- 8.5 The Commission's recommended approach
- 8.6 Assessment of the recommended process
Chapter 9 Maximising the benefits of the proposed reforms
- 9.1 Implement the reforms as soon as practicable
- 9.2 Promptly inform affected employers
- 9.3 Assist affected employees to understand the changes and make
  informed decisions
- 9.4 Allow a reasonable transition period for employers and funds
- 9.5 Ensure that the Default Superannuation Panel has appropriate
  skills, resources and legal status
- 9.6 Provide clear information about default products and their
  selection
- 9.7 Review the new process for selecting default products, including
  the factors for consideration
Appendix A Public consultation
Appendix B International experience — default funds in pension systems
References

Default superannuation funds in modern awards

Inquiry report

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