Making a Real Choice on Superannuation

25 January 2016

Originally published in the Australian. 

Choice in the superannuation system is one thing, but we have to be careful about who is doing the choosing.

Choice in the superannuation system is one thing, but we have to be careful about who is doing the choosing.

With more than 250 different corporate, industry, public sector and retail funds in the market, there’s no lack of options, and that’s before considering the self-managed super funds that number more than half a million.

I believe workers are best placed to determine which fund is right for their retirement savings, if they want to. That’s why Labor has said since the release of the Financial Systems Inquiry that we’re open to ways to genuinely expand workers’ options, including those locked into a fund as a result of an industrial agreement.

Still, the fact remains the majority of workers do not elect a super fund.

Whatever the reason, about 80 per cent of people do not select their fund and maybe never will. There’s nothing wrong with that if that’s your choice. But every worker should be confident their superannuation fund has their best interests at heart.

That’s why I am far more sceptical about the Turnbull government’s plans to turn the default fund system on its head.

In this newspaper, Assistant Treasurer Kelly O’Dwyer tried to describe this as a matter of choice as well, and it is. But it doesn’t give more options to the worker, it’s about more choices for the employer — and that’s where it gets complicated.

If your boss were able to determine the fund that manages your retirement savings, I’m sure the majority of them would do the right thing. But if they were tempted by funds with incentives for their business, would you be confident that they’d put your best interests first?

At the moment, if you don’t elect a fund, your employer’s contributions go into a default fund picked by your boss. The award system restricts the list of funds from which your employer can choose. In this way, the Fair Work Commission acts as a safeguard for the majority of workers to ensure the fund is suitable for someone in your industry and not just assigned because of some business deal with your employer.

For example, the poultry processing award specifies default super should be paid into the Meat Industry Employees’ Super Fund, or one of several other funds that specialise in offering superannuation to meat workers. These funds can offer insurance or services that are specifically tailored to their members from their industry.

The Fair Work Commission acts as a quality filter to narrow down the long list of funds for people who don’t want to or can’t do the research. Ms O’Dwyer would like to remove these safeguards while she has not yet detailed an alternative process to assign default funds.

The last thing we’d want to see is retirement savings being traded around by employers to gain preferential treatment or discounts from financial institutions.

Without the quality filter provided by the Fair Work Commission, you could imagine this would become even more prevalent and more workers’ retirement savings could be traded for other benefits. The government’s own Financial Systems Inquiry recommended waiting until 2020 to see how the current MySuper system performs before making any changes. So when you listen to Ms O’Dwyer and her colleagues speak about choice, the key question you should ask is — for whom?

The minister would like to conflate greater choice for workers with this issue around default super funds, two very different issues and two different objectives.

Labor’s ambition for super has always been to ensure a decent retirement for as many Australians as possible.

First published in The Australian on 25 January, 2016.