Challenging the myths surrounding default superannuation funds

Last year, as part of dismantling WorkChoices, the Rudd Government requested that the Australian Industrial Relations Commission begin an “award modernisation” project to consolidate the number of awards in Australia and bring them into the 21st Century.

The role of awards is to reflect legislated employment standards and to provide a fair, minimum safety net of entitlements for non-managerial employees working across various industries and occupations.

As well as the practical need to better reflect modern industries, jobs and work practices, award modernisation was intended to cement fair, minimum standards for Australian workers.

As part of this process, the Government has confirmed that superannuation — a key part of securing a decent retirement for working Australians — will continue as an allowable award matter. The effect of the superannuation clause in modern awards is to continue the selection of a ‘default’ superannuation fund, or funds.

Several myths have recently been propagated in relation to default funds and these demand a response.

It has been asked, what are default funds and why do we need them?

The first myth to debunk is that they are something new.

Default super provisions have existed in our award system since the introduction of compulsory superannuation some 17 years ago. They provide for the designation of a super fund for an employee’s super, agreeable to the industrial parties and the commission.

A second myth is that they are no longer needed. This is incorrect.

Today, the provisions exist because a large percentage of employees on awards fail to make a choice of super fund when they start a new job. As such, an agreed default option must exist, if only to ensure workers can immediately receive their 9 per cent super guarantee and employers can discharge their legal obligation to pay it.

Informed competition and choice simply cannot operate where individuals do not make a selection.

A third myth challenges the benefit of default funds to employers.

It would be unreasonable to impose complex superannuation decisions, with associated red tape burdens (not to mention the potential legal liabilities for selection of a poorly performing default fund), on employers.

Employers often say they don’t want to have to select a default fund, and this is another reason why employer organisations sit at the table with unions to select award-based default funds.

A fourth — and perhaps the biggest — myth is that default funds kill employee choice. This is simply untrue.

Since July 1, 2005, choice of fund laws have required employers to allow staff to pick their own fund if they choose to do so.

This will continue to apply and fully overrides the default super fund under the award. From July 1, 2006, this was extended to employees with state award coverage and to public sector employees.

A fifth myth is that current default fund arrangements are anti-competitive. The view has been put that default funds favour a particular sector of the superannuation system, namely industry funds.

It is true that many default funds are long-established industry funds, but the Government’s main concern is not that a particular sector be included or excluded from being a default fund, but that all default funds are solid performers that deliver the best results for members.

If the parties and the commission agree that it’s an industry fund that fits the bill, so be it. If it is a different type of fund, again that is a decision for the parties.

To aid this process, I have, as the Minister for Superannuation, written to the commission and spoken with the parties, urging them to consider the long-term performance of default super funds as part of their decision making.

Soon-to-be-published data from the Australian Prudential Regulation Authority on long-term fund performance will assist them. While the majority of default funds provide a good long-term rate of return, some do not.

It should also be noted that the commission, as well as specifying a list of default superannuation funds in each modern award, has also decided to allow as a default fund any fund to which an employer was making contributions on September 12, 2008 — another example of a modern approach to default and competition.

In conclusion, the Rudd Government feels a strong duty of care to Australian employees in a compulsory superannuation system.

As such, the Government believes that those employees who end up in a default superannuation fund are entitled to expect the fund will be a high quality fund with solid long-term performance and low fees.

The Hon. Senator Nick Sherry is the Minister for Superannuation and Corporate Law.