Productivity Commission Risks Unleashing A 'Hyper Retail Model' For Super

The Productivity Commission's Karen Chester says the governor of the Reserve Bank could lead the process, possibly assisted by the Tax Commissioner and chairman of the competition watchdog. Jessica Hromas

Using an expert panel to shortlist the best performing superannuation funds is a bad idea because it would probably fall "captive" to rich and powerful financial services companies, Industry Super Australia says.

The lobby group is also critical of the Productivity Commission for failing to deal with the "self-inflicted financial harm" associated with small-balance self-managed super funds, recommending restrictions on setting up SMSFs.

In a draft report in May, the commission recommended removing the Fair Work Commission as the arbiter of default funds.

Instead, an expert panel answerable to government would select 10 funds as "best in show". New entrants to the workforce would be nudged and defaulted into the top 10.

But ISA has questioned why the Productivity Commission wants to "scrap the successful industrial default system in favour of an untested alternative".

Selection of an expert panel will be problematic, and banks and other financial services companies will bombard would-be members with marketing material under a "hyper retail model".

"The financial sector, because of the resources it can command ... has the means and motive to attempt to 'capture' the shortlist selection process via its extensive experience at lobbying at ministerial and cabinet levels," ISA says in a submission to the Productivity Commission.

Some politicians might also be tempted to use appointments to the expert panel to "signal their dislike of not-for-profit funds by appointing individuals associated with retail funds and their corporate parents", the submission says.

Submissions to the commission's draft report on the competitiveness and efficiency of the super system were due on Friday but some stakeholders said they had been given extensions.

Politicisation of process

During public hearings in June, several witnesses expressed concern about the politicisation of the process for selecting an expert panel.

To counter concerns, Productivity Commission deputy chairman Karen Chester suggested the governor of the Reserve Bank could lead the process, possibly assisted by the Tax Commissioner and chairman of the competition watchdog.

ISA says the FWC should have more power to preside over the selection of default funds, not less. There should be a "better off test" for people seeking to join funds not endorsed by the FWC.

"Separately, non-FWC approved funds could be subject to an 'earned profits' requirement in which [the fund] must attain above-median net returns for a specified period before being allowed to pay profits to shareholders while soliciting default members."

ISA has also been pushing a "balance transfer model" that would see an individual's superannuation balance automatically transferred to a new fund when he or she changes jobs.

The Productivity Commission's proposal for dealing with the problem of multiple unintended accounts is for people to default once and remain with that fund unless they choose to swap.

Balance transfer plan

In its submission, QSuper has questioned the benefits of ISA's balance transfer proposal.

"Such a model would likely further entrench disengagement towards superannuation as the automatic transfer to a new fund when employment changes could be further seen as disempowering individuals from having an active role in their superannuation," it says.

"It is likely to result in confusion for individuals as superannuation fund membership could change quite regularly for some, given average job tenure in Australia is three years and four months."

On SMSFs, ISA says there should be a minimum balance amount and formation should be "pursuant to the recommendation of an independent, licensed financial adviser".


By Joanna Mather

Financial Review

16 July 2018

#Investment #ASIC #Advice #Accountant #FinancialPlanning #specialist #SMSF #Superannuation #Fund #lawyer

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