Even in the context of the traditional industry superannuation funds polemic, Industry Super Australia (ISA) is drawing a very long bow when it suggests that the current default funds under modern awards regime represents a "safety net" for those workers who fail to choose a destination for their superannuation guarantee contributions.
ISA chief executive, David Whiteley was earlier this month suggesting that not only was the default funds under modern awards regime a "safety net" but that it had been endorsed by no less than the Cooper Review, the Productivity Commission and the Financial System Inquiry.
Whiteley knows, of course, that the authors of the reports of the Cooper Review, the Productivity Commission and the Financial System Inquiry made no such specific findings with respect to the default funds regime. Rather, the authors of those reports made general comments about the manner in which the default funds regime had worked.
Notwithstanding the satisfactory investment performance of a number default funds over a number of years, there can be no denying the fact that they are the beneficiaries of a construct put in place by the former Rudd
Indeed, the default funds regime which existed before the 2007 election of the Rudd Government was arguably substantially more competitive than that which Labor imposed via its default funds under modern awards legislation. It was a reflection of the evolution of the superannuation industry over the previous 15 years with many more funds capable of competing to be default funds.
The ALP changed all that, using the industrial awards system and the industrial relations judiciary to narrow the number of funds which could be chosen by employers as default funds.
It is therefore against this background that the efforts of the Financial Services Council (FSC) to have the default funds regime altered should be viewed. Simply put, the FSC wants the default funds regime altered such that all MySuper funds approved by the Australian Prudential Regulation Authority (APRA) should be capable of selection as default funds.
The FSC goes even further in suggesting that not only should all APRA-approved MySuper funds be eligible for selection but that the industrial judiciary in the shape of the Fair Work Commission should be excluded from the process.
Why is David Whiteley fighting so vigorously for the status quo? Simply because he knows precisely how many members and consequently how much in terms of fund flows are being directed towards the industry funds who make up his constituency.
In an environment which, by Whiteley's own admission, up to 80 per cent of people are not choosing their own superannuation fund, there is a great deal to be lost if the default funds environment is opened up to more competition.
It is for this reason that the ISA is arguing that requiring employers to choose from all eligible MySuper funds would make the exercise too complicated and that industry funds have, in any case, tended to out-perform retail funds and therefore represent a "safety net".
There would seem to be an element of truth in the suggestion that employers don't want to be confronted by too many choices when selecting default superannuation funds, but the ISA's claims with respect to the out-performance of industry funds have become harder to sustain in the post-Global Financial Crisis environment.
The bottom line is that the industry superannuation funds waged a highly effective and successful campaign based on a consumer protection narrative to resist the Federal Government's changes to the Future of Financial Advice legislation. It should not be allowed to do so with respect to default funds under modern awards.
The only real beneficiaries from the current default funds under modern awards regime are the industry funds who have been nominated by the Fair Work Commission.