Friday, 11 November 2016

Productivity Commission criticized over focus of superannuation inquiry


Super inquiry should look to the best, not second rate, systems

The Productivity Commission should focus on the world’s best retirement income systems rather than consider inferior models in its review into default superannuation settings, warns Industry Super Australia.

The retirement income systems of Denmark, the Netherlands and Australia are currently ranked first, second and third respectively in Mercer's 2016 Global Pension Index. Yet, Chile (ranked 8) and New Zealand (no
ranking) are being held up as exemplars in the Productivity Commission’s review process.

In its submission to the review, released today, Industry Super highlights key features of the successful Danish and Dutch systems that are already evident in Australia’s high-performing industry, corporate and
public sector default funds. (See table below.)

Specifically, they are:
• Trusted providers run on a not-for-profit basis only for the benefit of members;
• Industry or multi-industry funds generally affiliated with or approved by industrial parties;
• Wholesale rather than retail in structure to leverage scale and minimise costs.

Industry Super Australia chief executive, David Whiteley, said the focus on New Zealand’s and Chile’s pension systems had set the Productivity Commission review off on the wrong foot.

“The touchstone of a world class pension system comes down to the culture and values of the providers,” said Mr Whiteley.

“The best systems– just like Australia’s best performing funds – involve employers and employee representatives working together to deliver income security for retirees. They are not about generating profits for banks and financial institutions,” he said.

“The approach to superannuation in Denmark and the Netherlands - along with the part of Australia’s system built and maintained by unions and employers - is internationally lauded.

“The key difference is that these systems and institutions put member interests above those of others, including shareholders”.

“Super is different to banking and industry super funds are deliberately different to bank super funds,” he said.

The track record of for-profit entities in superannuation systems is poor, and, in Australia, regularly dogged by scandals. In the past week it was revealed the major banks’ wealth management arms will have to pay up
to $170 million in compensation to customers who were charged for services they never received. A separate analysis conducted by Rainmaker for ISA found that retail and bank-owned super funds have gouged up to $1.8 billion in fees by delaying the transfer of accounts to cheaper MySuper products.

“Official APRA data shows the for-profit retail sector has underperformed industry super funds and other not-for-profit funds by almost 2 per cent a year on average over the last decade. The retail model has
comprehensively failed to deliver fair outcomes for members,” said Mr Whiteley.

“What separates Australia from the best systems is that we allow for-profit funds to participate, despite clear and serious conflicts of interest and an unwillingness to act on them”.

Industry Super Australia supports the role of the Fair Work Commission in determining workplace default funds.

The Productivity Commission has been tasked with developing alternative models for a formal competitive process for allocating default fund members to products. Its draft report is due in March
For further information, including a copy of the submission, contact Phil Davey 0414 867 188
Industry Super Australia provides research and advocacy on behalf of 15 not-for-profit industry funds who, in
turn, are the custodians of the retirement savings of five million Australians.

The opinions above are those of the author in their capacity as spokesperson for Industry Super Australia (ISA). ISA, the authors and all other persons involved in the preparation of this information are thereby not giving legal, financial or professional advice for individual persons or organisations. Consider your own objectives, financial situation and needs before making a decision about superannuation because they are not taken into account in this information. You should consider the Product Disclosure Statement available from individual funds before making an investment decision. Industry Super Australia Pty Ltd ABN 72 158 563 270, Corporate Authorised Representative No. 426006 of Industry Fund Services Ltd ABN 54 007 016 195 AFSL 232514

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