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.
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