The superannuation choice of fund proposal has been on the Federal Government’s to do list since the Coalition came to power in 1996. And while the Government considers it to be a major plank of its micro economic reform agenda, the government (with one minor exception) has been unwilling to compromise on its initial proposal.
The superannuation choice of fund proposal has been on the Federal Government’s to do list since the Coalition came to power in 1996. And while the Government considers it to be a major plank of its micro economic reform agenda, the government (with one minor exception) has been unwilling to compromise on its initial proposal.
With that in mind, the Federal Government has facilitated an enormous dispute between the various vested interests in the life insurance sector and the industry funds. Other key players such as the Labor Party are opposed to it and the Democrats are prevaricating. The Investment and Financial Services Association (IFSA) is pulling out all stops to get it legislated for, while the Association of Superannuation Funds of Australia (ASFA) is now opposed to it, after initially supporting it.
Consumer organisations have endorsed the concept of choice of fund pending govern-ment and industry instituting a comprehensive education and disclosure package as well as applying a more thorough series of consumer protection measures.
However, while the above represents a crude description of respective positions as adopted by the key players in the industry, those same players constantly give lip service to their conceptual support for choice of fund. Indeed, supporting choice of fund has be-come a cliché, with the assumption that the proposal exists is some sort of political policy vacuum.
The Labor opposition supports the concept of choice but is concerned workers may make the wrong choice. Their concerns revolve around issues such as lack of financial educa-tion, the possibility of diminished returns, problems with default funds and nearly every-thing else in the Bill. While some of Labor’s opposition to superannuation choice is well founded, the trade union movement has been responsible for leveraging a considerable amount of pressure on them.
Likewise the Australian Democrats have been equivocating on the issue. Like the Labor Party, the Democrats hold legitimate fears about costs, education, disclosure timing and the possibility of increased advertising budgets which can undermine investor returns.
While initially giving support to the proposal, ASFA has had a change of mind on the issue and have argued that there is not sufficient employee education in place to guaran-tee that they will choose the right fund. Instead, ASFA are proposing to expand the choice of investment option.
IFSA has consistently supported the choice of fund proposal by arguing that the current system is inefficient and imposes the burden of a badly performing fund on many em-ployees. IFSA believes that dynamism engendered by competition will actually reduce costs borne by employees, and that new technologies are already bringing down the cost of administration and compliance. IFSA further argues that Australian workers have had real choice in the form of rolling over their retirement lump sum payments, yet there is no evidence of any systemic abuse or bad administration.
“If workers can be trusted with all their retirement income upon finishing work, why can’t they also take control of their money during their working lives,” IFSA argues.
Senator Kemp correctly points out that one positive outcome of giving employees a choice of where to invest their superannuation money will be the pro-active engagement which employees will have to take in respect to their retirement incomes.
This is clearly a political struggle between vested interests. The public offer funds with their massive advertising budgets and household names stand to gain massively. Exclu-sive industry funds can potentially lose their monopoly over millions of workers’ super-annuation moneys.
Choice of fund is a fundamental employee right. The arguments against this are weak. Providing there is a comprehensive set of consumer protection measures, a thorough dis-closure regime and indications that employee education is made a priority, there is no reason why industry funds should fear member losses.
While there are a few funds which are performing badly, there is also comprehensive evidence suggesting that most employees would be best served staying in their industry funds. After all, unlike public offer funds, industry funds are not burdened by shareholder premiums, enormous advertising budgets, sales commissions and a range of other fees and charges which definitely make them less appealing to employees.
Properly implemented, choice of fund will have a positive affect on Australia’s retire-ment savings and incomes outlook. Badly performing funds are the only ones that need fear its introduction. Employees must be given a choice of where to invest their money.
Khaldoun Hajaj is a researcher and policy analyst for the Financial Services Consumer Policy Centre and is the author of the recently published Keys to Superannuation Choice.
