Default funds, what’s the future?

A Super Review roundtable considers the contentious issue of default superannuation funds under modern awards and whether minimum performance standards are necessary.

Mike Taylor, managing editor, Super Review: Well there’s been a glancing reference made earlier to default funds under modern awards and that’s certainly caused a bit of political to-ing and fro-ing in Canberra.

I guess the FSC’s position is that all MySuper funds be eligible to be default funds under modern awards and if that’s not the case, should default need to pass a performance hurdle?

Paul Cahill, chief executive, Club Plus: Well I’m a big believer in the default system and after 21 years running industry funds you might think it’s ingrained into me, but I do believe it adds value.

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You can’t have one size fits all. You have miners, you have meatworkers, you have maritime workers, you’ve got club workers and one size does not fit all.

Some funds have very specific rules, especially in their insurance buckets, about how they look after their people. I know that might seem, I don’t know, laissez-faire type economics rationale.

It’s not, but having the experience of seeing what particular industry funds do with particular industries you’d sometimes need to have a specific fund doing a specific job because it gives those members in those industries the coverage that their employer bodies and unions have fought very hard for.

They should be maintained and they shouldn’t be watered down to a lesser product because as I said, with over 21 years of watching this play out, they are very strong in making sure that their members are looked after and that’s a big plus for having default funds in award-based default funds. I believe that enormously.

On the other question, yes, I have mixed views on that, but I can’t stress the importance enough of making sure one size doesn’t fit all. 

Mike Taylor, Super Review: Russell?

Russell Mason, partner, Deloitte: I think competition is good. I think when there isn’t competition whether we’re a super fund or an individual we can get lazy. So I guess I would like to see hurdles put in place.

I don’t like the idea that any fund can be nominated or that if you’ve got the industrial muscle you can have your fund get in there when it doesn’t meet certain minimum requirements.

So I guess what I would like is a version of what’s been proposed with the Fair Work Commission, whereby we have that list of funds that meet a certain hurdle of performance, investment strategy.

There’s got to be, as Paul very correctly said, insurance that once you’re on that list you’re then eligible to be nominated by any employer for any award as a default fund, once you’ve met those minimum requirements in the area. Then it’s up to you.

A fund like Club Plus I believe for example does it very well in the clubs industry, to sell to the employers in that industry the benefits of Club Plus over its competition or other funds, just as Dick would know NGS Super has done in the independent education industry over many years.

It’s built up a following and even with the opening of default I don’t think there’s going to be a great deal of change.

Richard Sherman, chairman, NGS Super: I don’t think it will make much change but I have no problems with hurdles.

I was actually involved in the negotiations in 1988/89 to establish NGS as an official of the union so I’m very committed to the maintenance of that industry-specific fund.

I agree with the comments that have been made around the benefit that can accrue to members of that fund through that system – but hurdles, no objection at all.

Just in relation to a couple of the other points, it’s unfortunate that in a political campaign, if it’s started, that we’ve moved from governing to campaigning, that super is going to be a political issue.

I really do think that we have to move beyond that and it has to be bipartisan. The fact that it’s not is in no one’s interests.

I don’t think it does either the Government or the opposition much credit to make it a political issue, and I’m absolutely sure we’d all be in agreement that members of all of our funds don’t like that.

They don’t like it being a political football. So one would hope we can move beyond that. We need to. The industry is too important to be used as a way to attempt to get short-term political advantage.

Andrew Bragg, policy director, Financial Services Council: On the issue of the default funds, it’s inconceivable that the bookstore downstairs couldn’t go and engage complying My Super product as a default fund.

To suggest otherwise would mean that either the regulatory regime which we’ve just talked about just costing collectively tens of millions of dollars is deficient, or that APRA as the prudential regulator which has approved MySuper before they’re taken to market is doing something wrong.

We’ve talked a lot about what has been the FSC’s long-term view that super isn’t an industrial matter and therefore the employer should be free to pick their own fund. Now that’s perhaps quite a strong view on one side of the debate.

We always thought that the halfway-house in terms of talking compromise was, well, if default funds will remain in modern awards then why not allow, in the context of MySuper, those funds to remain there but then allow an employer to engage an approved MySuper provider.

From our point of view that would be a reasonable compromise – and we’re still even a long way from that. 

Gordon Noble, policy director, Association of Superannuation Funds of Australia (ASFA): Look I think the area that’s important is insurance.

We are seeing innovation in MySuper and we’ve talked about some of the costs coming in MySuper but I think it’s too early to see what the benefit of all the reforms are going to be.

Prudential standards, SuperStream, MySuper – there’s a lot of pain that we’ve gone through and I think psychologically we’re a bit burnt out by that.

So in terms of determining what the benefits of this reform process are, I think we will see some benefits going forward once we’ve completed the exercise, and I think that’s going to be good for confidence in the system.

In terms of that default question, that’s a difficult question for ASFA because of the makeup of our membership, but insurance is important.

It’s an important consideration. It’s an important part of superannuation and where you’ve got groups of employees that have particular characteristics, the idea that you’ve got just one superannuation, one insurance pot that everyone can go into ... I think that’s an aspect that in whatever we may do, wherever we may move in the future, that we’ve got to be thinking also of the insurance side to this too. 

Alex Hutchison, chief executive, EIS Super: Just on that, energy workers as an example have a very dangerous job.

A lot of our members can’t get insurance, or the cost of that insurance is quite prohibitive. So in particular for our members that’s a very, very valuable benefit of being a member of our fund and I can’t stress that enough.

Now in terms of some of the other rules, where they get on the list of 10: who comes up with the magic 10 – is it 16 – whatever the case in the criteria, I think that’s going to be quite a process to go through to be evaluated.

In terms of some of the challenges I think the Fair Work Commission has in assessing some of those applications, I really do hope they have the skills and resources to do that because I don’t think it’s going to be an easy task.