Does Bill Shorten's promotion come at the expense of objectivity?

Bill Shorten's mega-portfolio combining workplace relations with financial services will create a complex dynamic if the Government is to act appropriately on any Productivity Commission examination of default superannuation funds under modern awards. Mike Taylor reports.

Recent data released by Roy Morgan Research has served to underline the potential conflict created by the Prime Minister, Julia Gillard, in allowing Bill Shorten to remain in charge of financial services and superannuation while he takes on a higher duty as Minister for Workplace Relations.

The Roy Morgan Research confirmed that employers continued to be the primary channel relied upon by Australians when deciding on their superannuation fund.

It found that, over the past five years, approximately 85 per cent of superannuation products were obtained through the employer, while only approximately 11 per cent relied on a financial planner or adviser.

Why is this finding within the Roy Morgan Research so important in the context of Shorten's new mega-portfolio? Because it goes to the heart of default funds under modern awards.

In short, the Roy Morgan research confirms that most employees simply accept whichever default fund is selected by their employer.

What many employees do not know, however, is that these days their employers are obliged to choose their default fund from a narrow menu of mostly industry super funds determined by Fair Work Australia in accordance with historic union-influenced industrial award coverage.

The default fund regime harks back to the superannuation regime which predated the superannuation guarantee and choice of superannuation fund – the era which gave rise to award superannuation and, over time, the evolution of industry superannuation funds.

It is axiomatic of the regime around default funds under modern awards that there exists continuing disagreements, even between industry funds, about how it works. Certainly, there have been misgivings expressed about the industrial relations judiciary having a role in determining superannuation investment decisions.

Then, too, there has been the as yet unfulfilled promise on the part of the Government to have the entire default fund regime reviewed by the Productivity Commission – something which the Federal Opposition and many in the financial services industry have argued should have occurred well before the implementation of the Future of Financial Advice (FOFA) changes.

The Federal Opposition, together with a number of financial services organisations, have claimed that neither the Government's Stronger Super regime nor its FOFA changes should be pursued in the absence of the Productivity Commission dealing with the default fund regime.

They claim the Productivity Commission's findings will have significant implications for arrangements around MySuper which, in turn, has implications with respect to elements of the FOFA changes.

The Productivity Commission is, of course, independent and impartial, and comprised of people who are experts in their fields. It follows that its examination of the default funds regime will be objective and uncover any of the anomalies or distortions which may have been created.

However, by being both the Minister for Workplace Relations and the minister responsible for financial services and superannuation, Shorten will not only be the person responsible for initiating the referral to the Productivity Commission, but the minister responsible for dealing with the implementation of any of its recommendations.

He will be doing so in circumstances where the Federal Opposition has already suggested that he has shown undue sympathy towards the interests of industry superannuation funds and has deliberately delayed a reference to the Productivity Commission to serve those interests.

Given the Government's timetable for the implementation of the FOFA changes and its Stronger Super package, it seems unlikely that the Productivity Commission's findings on default funds under modern awards will significantly alter its underlying policy agenda.

It seems likely that the Productivity Commission's findings will emerge too late to influence FOFA and too close to the next Federal Election to make an immediate difference.

In those circumstances, the more interesting issue for the financial services industry in 2012 may well prove to be the recommendations which flow from the Parliamentary Joint Committee reviewing the FOFA legislation, and how they are ultimately treated by the Government.

On the available evidence, some bipartisan support appears to exist for some minor amendments and clarifications, but dissenting reports seem likely on the major issues such as "opt-in".

Perhaps equally important for the financial services industry will be the broader political mood in Canberra and the performance of the Prime Minister, Julia Gillard, in the public opinion polls leading up to the Federal Budget, and the manner in which that influences the internal dynamics of the Parliamentary Labor Party.

If, as has been rumoured in the Canberra press gallery, the Foreign Minister, Kevin Rudd, makes a play to regain the Parliamentary leadership of the ALP this will, in turn, impact the fortunes of Shorten.