Industry funds are exploiting loop-holes in superannuation legislation to deny open access to default funds under the new MySuper system and are engaging in protectionist practices according to the Financial Services Council (FSC).
FSC Director of Policy Andrew Bragg said that restricting which funds could be accessed as default funds under MySuper was an exploitation of a loophole in the Choice of Fund legislation introduced in 2005.
That legislation, introduced by then Minister for Revenue and Assistant Treasurer Mal Brough, allowed employees to choose their own superannuation fund or remain with their employer's chosen fund. However the legislation exempted employees under state awards or industrial agreements and Australian Workplace Agreements, which have since been called Enterprise Agreements.
"Even under this exemption it is hard to imagine any justification as to why someone would deny an individual the right to choose their own superannuation fund," Bragg said.
He said that while new MySuper default system had been introduced from 1 January 2015 "many of the lowest cost products are not in the market due to the anti-competitive and discredited Fair Work Commission".
"This is undermining the core principles of people being able to choose their own superannuation fund. It was not the principle of the legislation to restrict choice for some members, particularly given the compulsory nature of superannuation. To do so is inconsistent with the aims and purposes of superannuation," Bragg said.
Bragg said the opening up of default funds was part of series of changes that needed to come out of the FSI in regards to superannuation and includes independent directors on super fund boards and removing the ability to use Enterprise Agreements to restrict or deny fund choice
Bragg's comments come as the Industry Super Australia's (ISA) reiterated its position, released in August, that the Financial Services Inquiry (FSI) should restrict banks or related entities from selling default super fund services to an employer where the bank is already the main banking provider to the employer.
ISA also called for measures to ensure that retail and bank-owned superannuation funds delivered median returns to default fund members before being able to pay super investment dividends to shareholders.
ISA argued that default fund choice should be restricted to only better-performing funds and stated that industry funds had typically outperformed retail funds over the long term
Bragg rejected this position and stated that proposals to hold back dividends to investors were a smokescreen to avoid scrutiny of an anti-competitive super system.
