The Federal Government has used the terms of reference of a Productivity Commission (PC) inquiry into the superannuation system to open up the default funds regime to significant scrutiny and possible change based on competition grounds.
The terms of reference were announced by the Treasurer, Scott Morrison, and the Assistant Treasurer, Kelly O'Dwyer, coinciding with the SMSF Association national conference in Adelaide.
The terms of reference state that while MySuper has represented a good start, "more needs to be done to reduce fees and improve after-fee returns for fund members."
"The Financial System Inquiry noted that fees have not fallen by as much as would be expected given the substantial increase in the scale of the superannuation system, a major reason for this being the absence of consumer driven competition, particularly in the default fund market," it said.
The process outlined by the Governmebt will see the PC develop criteria to assess the efficiency and competitiveness of the superannuation system and release the criteria within nine months.
It said the release of these criteria was intended to provide transparency and certainty to the superannuation industry about how it will be assessed ahead of the full implementation of MySuper.
"The Productivity Commission is to develop alternative models for a formal competitive process for allocating default fund members to products. In developing alternative models, the Productivity Commission should be informed by the criteria it develops to assess the efficiency and competitiveness of the superannuation system. The Productivity Commission should report on alternative models within 18 months of receiving these terms of reference," the Government's announcement said.
The Government has made clear it wants the PC to look at developing alternative models stating, "the Productivity Commission is to examine alternative models for a formal competitive process for allocating default fund members in the superannuation system to products and to develop a workable model, or models, that could be implemented by Government if a new model for allocating default fund members to products is desirable".
"These model(s) would provide viable alternatives for the Government's consideration, depending on the outcomes of the review of the efficiency and competitiveness of the superannuation system, which the Productivity Commission will be asked to undertake following the full implementation of the MySuper reforms," it said.