Industry fund breaks ranks on defaults
A key industry superannuation fund has broken ranks with its peers to support a radical change to the default funds under modern awards regime.
In a submission lodged with the Productivity Commission review into alternative default models, Kinetic Super said it favours a market-based model of a competitive tender process.
In claims which run strongly counter to those of Industry Super Australia (ISA), the Kinetic Super submission said: "As identified by recent inquiries, the Australian superannuation industry lacks a strong consumer-driven competition that is particularly pronounced in the default fund market. This contributes to perceptions of inertia and complacency in the default fund system".
It said the fundamental merit of a market-based tender process lay in its potential to stimulate competition in the default fund market and to extend the benefits of scale without imposing lower returns.
"Its application to existing default members has the potential to cause a beneficial flow-on effect to the member choice market," the submission said.
It said that in recent years a consistent theme that had pervaded the various enquiries and reports into the superannuation system had been the lack of competition in price relative to scale, with adverse consequences for retirement savings.
"To date the problem remains unresolved. It is timely to implement a solution that confronts competitive barriers and breaks the current perceptions of inertia in the default fund system," it said.
"A market-based tender is the most effective solution because of its ability to revitalise benchmarking against the winning product and its international acceptance as promoting competition."
"Because of its adaptability throughout commercial relationships and public sector procurement a tender can accommodate itself to the regulatory regime with minimal disruption and without causing undue cost and complexity. The model is preferable to the administrative model that does not harness competition to the extent maximised by a market bid."
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