The Government's new default funds under modern awards approach represents a step too far and may lead to the closure of major funds, according to the Corporate Super Specialist Alliance (CSSA).
The claim has made in a CSSA submission to the Standing Committee on Education, Employment and Workplace Relations which states that if a fund does not appear in enough modern awards it is unlikely to survive because it cannot be chosen as a default fund.
"Major funds may be forced to close and we believe such interference in the market is a step too far for any government," CSSA president Douglas Latto said.
The CSSA submission argues that the new selection process for default funds under modern awards not only introduces three layers of bureaucracy but three layers of cost.
Latto also questioned whether the new specialist panel to be established within Fair Work Australia would be able to make the appropriate decisions based on the information available to it.
He said the CSSA questioned how the panel could choose default super funds when there was no investment history and in circumstances when many funds would be choosing new investment strategies for their MySuper offerings.
Latto said that in such circumstances, the temptation would be for the panel to select funds purely on fee cost and not on value.
He said the CSSA had serious concerns about the removal of grandfathering from Modern Awards.
"If a fund, chosen by an employer as a default fund in the past, is not selected as a MySuper Fund going forward, employees, who have had a long relationship with that fund, will be forced to move out of it – whether they like it or not," he said. "These are funds which have been tailored to meet the specific needs of the employees in their own individual workplaces."
Latto said the risks of forcing hundreds of thousands of members to move to alternate MySuper funds included:
- Auto-acceptance into group life insurance options may disappear, leaving members underinsured. This is particularly problematic for members with pre-existing conditions who are 'uninsurable' elsewhere.
- Those with life insurance in their existing super fund may end up with reduced cover on transfer to a MySuper fund.
- The cost of transferring member funds into MySuper funds will run into the multi-millions, a cost which must surely be ultimately borne by the members.
- The proactive financial literacy programs that corporate super fund advice specialists currently provide to corporate super fund members may no longer be available.
"Forcing large numbers of employers to undertake this exercise and move away from current carefully selected solutions that have been tailored for their workplace does not make sense," Mr Latto said.
