Default system entrenching regulator and union power


The current default superannuation system has entrenched disengagement and given more fund selection responsibility to regulators, employers and unions, according to big banking group, ANZ.
The banking group has used its submission to the Productivity Commission (PC) inquiry into superannuation efficiency and competitiveness to argue for a range of changes, including a lifetime superannuation identifier similar to a tax-file number.
However, the essence of the ANZ submission is that the very mechanisms which successive Governments have imposed to supposedly protect individuals may actually be achieving the opposite by “entrenching disengagement, by giving more responsibility to regulators and employers/unions in choosing funds”.
“The system tacitly implies 'it's ok not to worry about your superannuation,” the submission said claiming that it was also “unwittingly creating rigidity as when employees change jobs, they can move into a second or even third default account, causing a proliferation of super accounts, fees and insurance”.
“Employees shouldn't have multiple accounts by default,” the ANZ submission said.
It claimed the superannuation system had been unresponsive to changes in the workplace (e.g. more frequent job changes, gig economy) and in demography (i.e. catering for different generations), which exacerbates the effects of disengagement and rigidity.
The submission said that, as a result, two-thirds of members remained with their default fund despite the fact a default product provided the minimum services necessary to provide income in retirement.
“A system that is based around default allocations will only be optimal for an individual’s circumstances by accident,” it said. “In principle, individuals – with appropriate education and/or advice – should be able to improve their retirement income outcomes by choosing an alternative to the default option that better suits their individual circumstances.”
“Australia’s current mandatory and default superannuation system risks perpetuating issues around member apathy and disengagement, in addition to missing out on opportunities from fostering more choice and competition,” the ANZ submission said.
Recommended for you
A financial advice firm has been penalised $11 million in the Federal Court for providing ‘cookie cutter advice’ to its clients and breaching conflicted remuneration rules.
Insignia Financial has experienced total quarterly net outflows of $1.8 billion as a result of client rebalancing, while its multi-asset flows halved from the prior quarter.
Prime Financial is looking to shed its “sleeping giant” reputation with larger M&A transactions going forward, having agreed to acquire research firm Lincoln Indicators.
An affiliate of Pinnacle Investment Management has expanded its reach with a London office as the fund manager seeks to grow its overseas distribution into the UK and Europe.