A specialist committee within the Law Council of Australia has added its weight to those questioning the ability of Fair Work Australia to play a part in making the rules around the appropriateness of particular superannuation funds to be default funds under modern awards.
The Law Council committee’s views are made clear in a submission lodged as part of the Productivity Commission's review of the default fund regime – and the document makes cringe-worthy reading for the bureaucrats and policy experts responsible for the current default fund regime.
In a very polite and non-confrontational way, the Law Council committee’s submission seriously questions the ability of Fair Work Australia, as an industrial judiciary, to know enough about the technicality of superannuation to make effective decisions.
The committee was making specific reference to the possibility that it might fall to Fair Work Australia to impose additional criteria on MySuper funds to make them eligible to be default funds in the modern award environment.
“The Committee questions whether Fair Work Australia would have the ability or the expertise to assess the appropriateness of an investment or insurance strategy for employees covered by an award,” the Law Council submission said.
“If additional criteria are imposed on MySuper products or if Fair Work Australia is required to select the funds which are included in a particular Modern Award, the following questions will be raised:
- Would a trustee have standing to make submissions to Fair Work Australia before FWA makes its decision?
- If not, would the trustee need to rely on representations of entities that do have standing, such as unions and employer groups?
- How would such entities obtain the information necessary to assess or make representations to Fair Work Australia on these criteria?
- What would happen if a fund objected to the information given or representations made to Fair Work Australia in relation to the fund?
- What would happen if a fund objected to the information given or representations made to Fair Work Australia in relation to another fund?
- What would happen if a fund disagreed with Fair Work Australia’s assessment? Would a fund have the right to appeal in relation to FWA’s decision?
“Further, if Fair Work Australia were charged with applying additional criteria, consideration would need to be given to how such criteria could be applied consistent with the concepts of natural justice, rights of appeal and other administrative law principles.
"This is especially the case as the viability of a fund may very well depend on whether it is named as a default fund in a Modern Award.”
The Law Council submission cautioned that consideration would also need to be given to the possibility of a fund seeking judicial review of FWA’s decisions, and the distraction away from Fair Work Australia’s main functions in undertaking what could be argued to be a role traditionally played by ratings agencies.
“For these reasons, the Committee submits that subjective criteria should not be used in determining which funds should be listed as default funds in modern awards,” it said.
In doing so, the Law Council submission added considerable weight to arguments such as those contained in the submission from the Financial Services Council (FSC), which has held that any MySuper Fund should be eligible to a default fund.
Indeed, both the Law Council and FSC submissions make the point that the rules intended to govern the eligibility of superannuation funds to be MySuper funds are such that they exceed any of the existing criteria for being a default fund under modern awards.
According to the FSC, the requirements inherent in a superannuation fund becoming a MySuper fund are such that any employer should be able to nominate an Australian Prudential Regulation Authority (APRA)-registered MySuper fund as a default fund.
It said such an approach would take away the requirement for a designed Fair Work Australia process.
“This approach would have the benefit of removing conflicted industrial parties from selecting default superannuation funds without proper consideration by Fair Work Australia,” the FSC submission said.
It said such an approach would “also remove another agency from the already complex superannuation system which involves APRA, the Australian Securities and Investments Commission, the Australian Taxation Office and AUSTRAC”.
Perhaps not surprisingly, the dissenting argument has been put forward by the organisations broadly representative of the industry superannuation funds, many of which have been nominated as default funds under modern awards.
For its part, the Australian Institute of Superannuation Trustees (AIST) has argued that Fair Work Australia should have a continuing role in the process, but has acknowledged that fund investment performance should be the most important criteria.
The AIST submission urged the continued participation of the industrial judiciary, saying:
“Employers must be confident that the fund choices they make for their disengaged employees are the right ones. Employers will be assisted by having a limited number of funds to choose from. The system has to work not just for employees, but also employers. Getting that balance right is the role of Fair Work Australia.
“The current system has served members well and provides an important safety net. As with other employment entitlements, superannuation issues in awards should be agreed to by industrial parties who have standing before Fair Work Australia.”
The submission also urged the imposition of the following selection criteria with respect to default funds under modern awards:
- Past performance based on 10-year rolling net returns (APRA data), assessed against each fund’s investment objectives and target returns;
- Cost-effective insurance and member services suitable for employees covered in the award;
- Transparent fund governance where the roles of employers and employees are considered, and assurance that the fund is acting in the best interests of members; and
- Protecting members by not allowing listed default funds to “flip” members into higher fee products on termination of employment.
It said employer and employee associations working together under the umbrella of Fair Work Australia should apply these criteria, and draw upon the enhanced super fund performance and other reporting being developed by APRA.
