Productivity Commission's default fund position set to be short-lived
Mike Taylor writes that the Productivity Commission's final report on default funds under modern awards delivered a formula which is unlikely to survive a change of Government.
While there has been much disappointment expressed about the Productivity Commission’s final report on default funds under modern awards, it was never going to be a prescription slavishly followed by the Federal Government.
What needs to be understood about the Productivity Commission report is that, just like the findings of the Henry Tax Review, the Government can pick and choose the elements it wants to use or not use.
That is why it is hard to understand why the Minister for Financial Services, Bill Shorten, broke with broadly accepted convention and laid down the Government’s position nearly two months ahead of the Productivity Commission producing its final report.
He did so by publicly and forcefully endorsing a submission to the Productivity Commission filed by two of his own departments – the Treasury and the Department of Education, Employment and Workplace Relations (DEEWR).
It was that action which prompted the Federal Opposition and a range of industry stakeholders to accuse the minister of seeking to exert undue influence on the findings of the Productivity Commission.
And, on the face of it, those accusations would seem to have at least some substance in circumstances where the Productivity Commission’s final report appeared to veer away from its preliminary findings – and to align with the broad arguments contained in the Treasury and DEEWR submission.
In the words of Association of Financial Advisers (AFA) president Brad Fox, “The Productivity Commission has backed down from the strong pro-competition, pro-choice and pro-transparency position they took in their interim report and appear to have given in to pressure from the minister”.
It would be a sad reflection on the Productivity Commission if, in fact, it did allow itself to be unduly influenced by the minister, because it is a body which, over the years, has distinguished itself by producing reports which have been viewed as both fearlessly independent and highly pragmatic.
The man who chaired the Productivity Commission inquiry into default funds under modern awards, Mike Woods, is the deputy chairman of the Commission and a man who has spent his career either in the public service or consulting to public service organisations.
Similarly, another member of the inquiry, part-time commissioner Angela MacRae, has spent time in Treasury and with CPA Australia, while associate commissioner Paul Costello is the former general manager of the Future Fund and headed up the Government’s Stronger Super Consultative Group.
Thus, the backgrounds of the three people who produced the Productivity Commission report suggest they would not have allowed themselves to be particularly swayed by Shorten, especially in circumstances where they would have been aware the minister could have cherry-picked their findings in any case.
However, the critical element in the Productivity Commission’s report is the manner in which it has rejected the notion that all MySuper funds can qualify as default funds, while further entrenching the role of the industrial relations judiciary, albeit that the selection of default funds will be carried out by a supposedly expert panel.
And if the critics of the Productivity Commission’s final report were to appropriately review the original terms of reference, they would note that the commission was never going to be in a position to recommend a regime which did not in some way accommodate the industrial relations parties – Fair Work Australia, employers and unions.
A key section of the terms of reference, dealing with the scope of the inquiry, stated: “While the Commission is to focus on factors that optimise outcomes for members, it should also consider the administrative and compliance impact of its recommendations on employers and their representatives, unions, superannuation funds and decisions of Fair Work Australia”.
In other words, it would have represented a considerable unilateral leap on the part of the commissioners to recommend a system not involving Fair Work Australia.
Notwithstanding the origins of the superannuation guarantee as a non-wage benefit developed as part of the Prices and Incomes Accord, there will be few objective observers of the Australian superannuation system who do not regard the continued involvement of industrial judiciary as an aberration, if not an anachronism.
The Opposition spokesman on Financial Services, Senator Mathias Cormann, has made clear that any future Coalition Government will be addressing the issue and attempting to inject genuine competitive neutrality into the exercise.
The most likely method a Coalition Government would use to achieve that outcome would be the amending of legislation to allow employers to choose any complying MySuper fund as a default fund under any award.
Given that industry funds and retail funds will all have complying MySuper products, it would seem a much simpler answer than that delivered by the Productivity Commission for whatever reasons.
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