The Commonwealth Bank is the latest in a growing list of big players to question the process of selecting superannuation funds in modern awards.
Its submission to the financial systems inquiry, which is headed by former Commonwealth CEO David Murray, outlines major problems with the current selection process.
It labels duplication, inefficiency, and unnecessary costs as the most pressing concerns.
Not only do funds have to have an APRA-authorised MySuper product in order to receive compulsory employer contributions, but if they wish to receive contributions from award-based employees the fund also needs to be named in a modern award.
“This requires the fund to apply to the Fair Work Commission’s (FWC) expert panel to be included in the default superannuation fund list (first stage), and apply to the full bench of the FWC to be listed in each modern award in which they seek to be named (second stage),” the submission said.
This process is unnecessary, especially considering trustees have only recently undertaken the rigorous and costly process of achieving APRA MySuper product authorisation, it said.
“For trustees to now have to apply to another body for the right to compete to provide services to a large segment of the market is duplicative and inefficient whilst imposing unnecessary cost.”
The Commonwealth Bank recommended that the legislation be amended to allow an employer to select any MySuper product as the default superannuation fund for their award.
The Association of Superannuation Funds of Australia (ASFA) has also just made public its financial systems inquiry submission, which raises some concerns about the transparency of the default funds process.
It stated that any application process should be as simple as possible and avoid any red tape or unnecessary costs.
“The existing legislated model for default funds in modern awards is contestable in the sense that all providers of MySuper products have opportunities to be considered for selection as a default fund in an award or awards,” it said. “However, where the employer associations and unions associated with an award have the final say, this in effect restricts the range of funds that might be considered for inclusion in an award.”
The Financial Services Council (FSC) has publicly condemned the multi-staged default fund process, calling it anticompetitive and biased to superannuation funds owned by unions and employer organisations.
“The current default fund selection process explicitly favours superannuation funds owned by unions and employer organisation, which are the only parties eligible to make submissions to the commission during the second stage of the selection process,” CEO John Brogden said in a February media release. “It’s a closed shop.”
The superannuation industry is paying $45million just to comply with the FWC default fund selection process “with no benefit whatsoever”, he said.
The FSC has called for the FWC default fund selection process to be disbanded, especially in light of the removal
of two members of the expert panel due to conflicts of interest, and subsequent questions
that have been raised about legislative breaches.
spoke to Douglas Latto, the president of the Corporate Super Specialist Alliance (CSSA), who agreed there is too much red tape in the default funds process.
He said the CSSA, like the Commonwealth Bank, want employers to be allowed to select any MySuper product as the default superannuation fund for their award.
“We would say absolutely [removing the quality filter] saves money, and in a very significant way,” he said.
The CSSA is also concerned about FWC overseeing the quality filter, because it feels the commission doesn’t have the necessary experience.
“Our members, for example, are specialists in helping people select super funds and they spend years and years doing it,” Latto said. “I don’t see how the Fair Work Commission can walk in after a few months. It’s like getting your handyman to do your electrical work.”
The FWC was also brought into question in an oversight of ASIC at the Parliamentary Joint Committee (PJC) for corporations and financial services last week.
Chair Senator David Fawcett said that although the FWC is not directly ASIC’s responsibility, on page 28 of its annual report the commission talks about how it has:
“… moved to require platform operators to explain how they choose the different products on offer to investors through their platforms … so that investors who invest through a platform are adequately protected compared with direct investors.”
However the current mechanism with the FWC and the expert panel means the reasons for their decisions are not transparent, Fawcett said.
“So the reasons why they allocate a particular fund—all of which, all the ones which apply, have been approved by APRA—or the reasons for which they approve that fund to a particular award, are not transparent to the policyholder."
ASIC commissioner Greg Tanzer replied that although he was happy to look at the issue again, he didn't see how ASIC has particular jurisdiction to require the Fair Work Commission to disclose its reasons for actions that are taken.
“I think that is a matter for the Fair Work Commission,” he said. “What is necessary is that the investor clearly understands what decision has been made.”