The Corporate Super Specialist Alliance (CSSA) has made a submission to the Standing Committee on Education, Employment and Workplace Relations, objecting to the selection of default super funds being incorporated in the Fair Work Amendment Bill 2012.
In their submission, CSSA President Douglas Latto says the new selection process would introduce three layers of bureaucracy and therefore three layers of costs.
“For a fund to make it through to a Modern Award, an application to APRA to become a MySuper Fund would first have to be made,” he said. “It would then fall to the Default Selection Panel (DSP) to select which MySuper Funds make it through to each Modern Award. Finally, the Bench of Fair Work Australia (FWA) would vet the selections from the DSP. The amount of time and cost involved in this process is considerable.”
Mr Latto said the CSSA also objects to the new process on the grounds that it will distort the market.
“If a fund does not appear in enough Modern Awards it will be unlikely to survive because it cannot be chosen as a default super fund,” he said. “Major funds may be forced to close. We believe such interference in the market is a step too far for any government.”
The CSSA also questioned how the DSP can choose default super funds when there is no investment history. “Many funds will be choosing new investment strategies for their MySuper so comparisons will be difficult if not impossible,” Mr Latto said. “The temptation will be to select funds purely on fee cost and not on value.”
He also said a review period of four or even eight years may have a negative impact on members. “Funds that are on the list will wish to remain on the list and will be tempted to make inappropriately short term investment decisions,” Mr Latto said. “This could negatively impact investors in superannuation which is, by its nature, a long term investment.”
Mr Latto said the CSSA also has serious concerns about the removal of grandfathering from Modern Awards.
“If a fund, chosen by an employer as a default fund in the past, is not selected as a MySuper Fund going forward, employees, who have had a long relationship with that fund, will be forced to move out of it – whether they like it or not,” he said. “These are funds which have been tailored to meet the specific needs of the employees in their own individual workplaces.”
Mr Latto said the risks of forcing hundreds of thousands of members to move to alternate MySuper funds include:
• Auto acceptance into group life insurance options may disappear, leaving members underinsured. This is particularly problematic for members with pre-existing conditions who are ‘uninsurable’ elsewhere
• Those with life insurance in their existing super fund may end up with reduced cover on transfer to a MySuper fund
• The cost of transferring member funds into MySuper funds will run into the multi-millions, a cost which must surely be ultimately borne by the members
• The proactive financial literacy programs that corporate super fund advice specialists currently provide to corporate super fund members may no longer be available
“Forcing large numbers of employers to undertake this exercise and move away from current carefully selected solutions, that have been tailored for their workplace, does not make sense,” Mr Latto said.
The best solution, according to the CSSA, is for any MySuper fund to be a default super fund.
“If an award limits the choice employers have for their default fund, it reduces their ability to provide the best outcome for their employees,” Mr Latto said. “This is clearly anticompetitive and not in anyone’s best interest, other than the fund nominated in the award. If a product is superior, market forces will attract advisers and investors to it.”