The Productivity Commission (PC) has recommended changes to the $474 billion default super market that would encourage greater customer choice and engagement. If enacted, the changes will result in employees holding fewer super accounts, potentially delivering them better financial outcomes through improved returns and reduced fees.
The draft report[1] proposes four model alternatives to allocate employees new to superannuation into a default super fund that is more closely aligned to their best interests. These would replace the prescribed default super options currently contained in the industrial relations system (modern awards and enterprise agreements).
The report found that around two-thirds of members in default super funds remain with their fund. This may suggest they are not actively engaged with their super and potentially missing out on opportunities to maximise their retirement benefit.
In addition, an Australia-wide system for selecting default funds would reduce the incidence of employees having multiple super accounts and see those not nominating a super account being forced into a default fund only once, upon entering the workforce.
This would see an end to the ongoing proliferation of super accounts, leading to a reduction in overall fees through facilitating account consolidation into a single employee super account with a higher average balance. It’s estimated that this could save the 40 per cent of employees who have multiple accounts more than $500 per year[2], equating to $150 million in savings across the workforce.
Steve Black, IOOF’s Head of Client Delivery commented, “We support reforms that make choosing a super fund simple and promote engagement. From our own fund research, we know that employees who actively choose their super fund make more informed investment decisions leading to higher super account balances and better retirement outcomes.”