No proof that industry funds are superior
There is no data to support claims that industry default funds outperform retail funds because of their not-for-profit status or superior governance model, according to new research published today.
The research, undertaken by superannuation consultant and former Australian Institute of Actuaries president, Barry Rafe, and published by the right-wing think tank the H.R. Nicholls Society today, has argued that superior performance of industry funds is much more likely owed to the industry funds successfully exploiting their early competitive advantages to the benefit of all superannuation members, and industry funds investing in unlisted property trusts rather than the listed property trusts generally favoured by for-profit funds.
Further, the report argues that industry funds have now lost their competitive advantage and that the conditions that led to industry fund out-performance are unlikely to be repeated in the future.
Notwithstanding this, the report argues that the default funds under modern awards regime will serve to entrench the interests of many of the major industry funds "not because they are the most innovative, provide superior service, are best governed, have the best anticipated investment performance or have the most capital backing them, but because they are already well-established in the system".
"This does not appear to be an outcome that is in the employee's best interests," the report said.
Rafe's report said that members had been well served by industry superannuation funds, but the MySuper regime, along with the more rigorous governance standards, had reset the competitive environment for superannuation.
However it said the amendments to the Fair Work Act underpinning default funds under modern awards would "lead to constraints placed on competition and impose significant additional costs and disruption to a material number of employers".
"Employers should be free to select any MySuper product they consider appropriate. The market will be well informed as product performance will be transparent and it will be closely monitored by expert commentators and by APRA [the Australian Prudential Regulation Authority]," the report said. "To suggest otherwise infers that the MySuper regulatory regime or the APRA licensing process is somehow deficient."
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