Superannuation: Alternative Default Models

Brief comments

The Australian Government has asked the Productivity Commission to develop alternative models for allocating default members in the superannuation system to products.

The Commission released a draft report and has also prepared a summary fact sheet, for those that lack the time to read the entire document.

We asked to hear from you about how default super could deliver better outcomes in the future.

We particularly welcomed comments from young people who are new to the system, and from those who help them navigate it, including their parents.

Comments made below are not considered formal submissions, though comments may be used by the Commission to inform its final report.

The Commission reserves the right to not publish material on its website that is offensive, potentially defamatory, or clearly out of scope for the inquiry in question.

Comments received (8)

Included are only those comments for which the submitter gave their approval for use of their comment by the Commission. Some comments have been edited to remove information which the Commission considered to be defamatory, or which could enable identification of the submitter.

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Employers (1)

1. Adding layers of complexity to the system will only increase the cost, which leads to end user suffering the cost.

Fund members (2)

1. I am anti union big time but one thing I have learnt since super started in the 1990's is that union funds are the best option. The retail funds lose members money and encourage bullying of workers by employers to sign up to their fund via benefits to the employer and are basically incompetent. My super went nowhere until I stood my ground against employers and demanded my super went into a union fund. Also 4 weeks to comment what a joke.

2. I agree that members should be encouraged to have only one fund, I think this should be a catalyst for members to educate themselves, engage and make a choice. Assisted by Dashboards or similar. Incumbent or new employers could encourage choice during the employee recruitment process, utilising a government database. I absolutely disagree with any process based purely on fees and/or short term past returns, instead investment philosophy and approach to risk, as well as simplified asset allocation information should be the key drivers of selection. Do we want our super system to end up with 100% allocation to passive index linked cheap products? It is clear assets like unlisted infrastructure and private equity are relatively expensive, but have proven returns, encourage economic development and are asset classes that typical members otherwise cannot access. They are proven diversifiers in financial crises. We don't all buy the cheapest car, so why should we all have the cheapest Super.

Superannuation industry workers (5)

1. Default superannuation should be removed from awards, and any MySuper compliant fund should be suitable as a default fund. I see no reason whatsoever to consider any other significant changes to the superannuation system at this time, maybe just a tightening of rules around MySuper funds and better access to fund reporting so employers can more easily make a choice of default. MySuper has not fully implemented and matured so it's not yet possible to judge it's success. Employers are best placed to choose a default fund for employees, and many employers position their super offering as a 'employee benefit'. They negotiate better terms and conditions for their staff. Why would it be beneficial to change this and remove benefits?

2. I'm not sure a fixed shortlist for individuals is necessary or the best approach. I agree it makes sense to only present a small number of default products, but the selection could be dynamic rather than fixed. The person's age, gender, occupation, nature of employment (eg full / part time, casual, contract) could be taken into account to narrow down the pool of accredited products to randomly choose from to display. In addition someone could be offered the option to answer a short series of questions to elicit product features that suit their situation. This avoids needing to run a shortlisting process every four / eight years and (if well designed and tested) would result in better defaults being presented to individuals.

3. Yesterday I spoke with a nurse who lives in a Qld regional town. She was told by her employer she would have her super paid to a specific (named industry) fund and did not get a choice. While she knows that is illegal, so as to “not cause any trouble” she complied, though she had another fund she wanted to use. Clearly it is time for a shake up in the system. I welcome the PC recommendations for change and look forward to outcomes that will benefit the members first.

4. I'm not sure that avoiding creating a new account for someone who already has one is always the right answer. Maybe if someone's existing account is in an accredited mysuper product, or otherwise if the balance of the account is above a certain amount (eg $10,000), then the account would be eligible to be re-used as the default when the person changes jobs. If neither is the case, the person ends up with a new default account in an accredited product.

5. MySuper compliant fund should be suitable as a default super fund for all employees. If this were to be the case, fund reporting should be improved to help employers in the on- boarding of new staff and setting up choice of fund. Making further changes will have a negative impact on costs and reducing fund member education, just to name a few.