This draft report was released to assist participants in preparing a submission to the public inquiry into default superannuation funds in modern awards.
Default superannuation arrangements exist because many employees do not actively choose a superannuation fund. Default funds are currently listed in most modern awards.
Current default fund arrangements have provided stability, and investment returns of default funds have generally exceeded those of non-default funds.
However, the arrangements could be improved to promote the best interests of members. The primary objective of default funds should be the best interests of members, and for modern awards that list default funds, the selection and ongoing assessment of those funds should be merit based.
The criteria that the Australian Prudential Regulation Authority will use for MySuper product authorisation provide a sound basis for the selection and ongoing assessment of superannuation funds for listing as default funds in modern awards.
While the Commission does not consider there is a need for additional criteria, there are factors that should be considered as a second stage when selecting funds to be listed in modern awards.
These are: as primary factors, the appropriateness of the MySuper product's investment return and risk profile for employees to whom the superannuation provisions in that modern award apply, and the fund's expected ability to deliver on the MySuper product's investment objectives the appropriateness of the fees charged by the MySuper product, given its stated investment return objective and risk profile the assessment of governance structures to test if they are, as far as legislative requirements allow, consistent with meeting the best interests of members the assessment of the mechanisms put in place by fund trustees to deal with conflicts of interest, and the transparency in disclosing those conflicts the likelihood of members being switched to higher cost divisions of a fund, or facing significantly higher fees upon exiting employment ('flipping') the compatibility of the fund's insurance offerings with the characteristics of employees to whom the superannuation provisions in that modern award apply the quality of member- and fund-specific intra-fund advice the administrative efficiency of a fund against a set of benchmarks.
The process for the selection and ongoing assessment of superannuation funds for listing as default funds in modern awards also needs to be reformed. The Commission is seeking further comment on two alternative options.
Decisions being made by an expert panel within Fair Work Australia (FWA), and the selection process being opened up to allow all funds to present their case to be listed in awards to FWA, based on the factors identified by the Commission; or Establishment of a new expert body independent of FWA, with the sole purpose of selecting and assessing the funds to be listed in modern awards, based on the factors identified by the Commission. Under either option employers would be able to choose a fund not listed in an award, provided they can demonstrate, upon request, that their employees are no worse off.