The Productivity Commission will conduct an inquiry into the selection and ongoing assessment of default superannuation funds in modern awards, Minister for Superannuation, Bill Shorten and Assistant Treasurer Senator Mark Arbib announced today.
The inquiry is expected to begin in early February 2012 and run for up to eight months.
Superannuation originated in the industrial relations system and awards determined the funds that applied for each industry. The Government believes default funds should continue to be included in modern awards, but there should also be a transparent set of criteria that such funds can be assessed against.
This is in line with the Cooper Review, which recommended the processes by which default funds are nominated for inclusion in modern awards be reviewed in 2012 to assess whether they are sufficiently open and competitive.
This inquiry delivers on the Government's election commitment to ask the Commission to design a process for the selection and ongoing assessment of superannuation funds for nomination as default funds in modern awards.
It seeks to develop transparent and objective criteria against which funds wishing to be eligible for default fund status in modern awards can be assessed, on an ongoing basis, to ensure that the best interests of members are met if their superannuation contributions are allocated to a default fund under the modern award.
Senator Arbib said he was pleased to announce the appointment of Mr Paul Costello as a part time Associate Commissioner to assist on the Inquiry.
"As a former Chair of the Stronger Super Peak Consultative Group, General Manager of the Future Fund and Chief Executive of superannuation funds in Australia and New Zealand, Mr Costello has an extensive background in the superannuation industry and will be a valuable addition to this inquiry," Minister Arbib said.
The Productivity Commission will hold public hearings and release a draft report for public comment, before delivering a final report to the Government.
The Terms of Reference for the Inquiry are attached.
Attachment
Terms of Reference
Productivity Commission inquiry into the process for the selection and ongoing review of superannuation funds to be included in modern awards as default funds
I, Mark Arbib, Assistant Treasurer, pursuant to Parts 2 and 3 of the Productivity Commission Act 1998 hereby request that the Productivity Commission undertake an inquiry into the process for the selection and ongoing review of superannuation funds to be included in modern awards as default funds.
The Commission will commence its inquiry on receipt of the terms of reference and report to Government within eight months of commencement.
Background
In May 2009, the Government commissioned a comprehensive and independent review into the governance, efficiency, structure and operation of Australia's superannuation system (the Cooper Review). The Cooper Review provided its final report to Government on 30 June 2010 and made 177 recommendations.
A key finding of the Cooper Review was that many consumers do not have the interest, information or expertise required to make informed choices about their superannuation. These consumers rely heavily on the default superannuation system to act on their behalf.
Superannuation originated in the industrial relations system and awards determined the funds which applied for each industry. Modern awards now list "default superannuation funds" which apply if an individual fails to exercise their right to choose their own fund. Enterprise agreements can also set the default superannuation fund or funds for a particular workplace. Enterprise agreements must be approved by a majority of employees and must be approved by Fair Work Australia who can only do so if satisfied employees are "better off overall"than under the relevant modern award.
The Government believes that default funds should continue to be included in modern awards, but there should also be a transparent set of criteria that such funds can be assessed against. This is in line with the Cooper Review, which recommended that the processes by which default funds are nominated for inclusion in modern awards be reviewed in 2012 to assess whether they are sufficiently open and competitive.
This review delivers on the Government's election commitment to ask the Commission to design a process for the selection and ongoing assessment of superannuation funds for nomination as default funds in modern awards. It seeks to develop transparent and objective criteria against which funds wishing to be eligible for default fund status in modern awards can be assessed, on an ongoing basis, to ensure that the best interests of members are met if their superannuation contributions are allocated to a default fund under the modern award.
Scope of inquiry
- The Commission is to design criteria for the selection and ongoing assessment of superannuation funds eligible for nomination as default funds in modern awards by Fair Work Australia.
- The criteria designed by the Commission should be transparent and objective. In considering criteria for determining whether a superannuation fund is appropriate to be nominated as a default fund in a modern award the Commission could have regard to the following:
- The appropriateness of the investment strategy of the default investment option of the fund in terms of risk and expected return;
- The medium to long term net-of-costs investment performance of the default investment option;
- The level of fees incurred by members;
- The scale of the fund and the level of services provided to fund members;
- The suitability and cost of insurance provided by the fund;
- The governance of the fund; and
- The fees incurred and other impacts on members if they cease employment with an employer.
- 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 undertaking its inquiry, the Commission should have regard to the following matters:
- the interaction with the design and implementation of MySuper, including that only funds offering a MySuper product will be eligible to be included in modern awards;
- modern awards will continue to be made and varied by Fair Work Australia; and
- modern awards will be subject to a comprehensive public review by Fair Work Australia in 2014, following an interim review in 2012.
Process
The Commission is to undertake an appropriate public consultation process including holding hearings, inviting public submissions and releasing a draft report to the public.
The Government will consider the Commission's recommendations, and the Government's response will be announced as soon as possible after the receipt of the Commission's report.