Our $2 trillion superannuation system is too important for consumers and the economy for it to continue to be enmeshed in the industrial system.
Consumers who have free choice in every other facet of their financial lives should be allowed to choose a super fund on merit, not based on whether a trade union, and the industry fund it owns, has coverage over an industrial award.
The fact Australians are good at creating level playing fields means that, inevitably, protective barriers to competition that shape our mandatory savings system will be dismantled.
We removed agriculture’s protective tariff barriers long ago and now can boast the most competitive, adaptable and efficient farming sector in the world.
We’ve bitten the bullet across much of the manufacturing sector, removing tariffs on shoe and textiles industries in the 1980s, then finally cutting the flow of taxpayer subsidies to our uncompetitive car manufacturing industry. It was painful, and more must be done to make our industries truly competitive. But no one — except for a few New Age protectionists — argues coherently that we should return to the days when agrarian socialists and trade union closed shops ruled our economy.
Surprisingly for a nation that likes lecturing the rest of world about the benefits of free trade and open markets, our superannuation sector — the fourth largest pool of funds in the world — remains largely untouched by the cleansing light of competition.
The biggest barriers to a level playing field are the industrial laws that set the rules in 1992 when 3 per cent of workers’ wages were channelled into a new, compulsory super system as a wage trade-off between the unions and the Keating government.
Our super system, 24 years on, is a commendable policy that is slowly delivering better self-funded retirement outcomes for most Australians. But it has cemented in some impenetrable barriers to competition for managing a huge chunk of super savings.
Industrial laws, enforced by the Fair Work Commission, effectively prevent half the superannuation funds from competing for the “default” savings of Australians. A default fund is where your super goes if you don’t bother to choose a fund when you sign up for a job — astonishingly, up to 80 per cent of employees may fall into this camp. The only funds that can access this $9 billion pool are chosen by the FWC. And the only parties entitled to appear before the FWC are unions and employer organisations, the owners of industry super funds.
Financial Services Council member super funds offer some of the highest performing and lowest cost MySuper products, all of which have been approved by the Australian Prudential Regulation Authority. Millions of consumers miss out on the benefits of competition and choice because these products cannot get past the FWC gate. The funds allowed through the gate, selected by an industrial relations arbiter with no experience in financial services, are a dog’s breakfast of varying quality and price. Some are excellent. Some are poor quality, underperforming and expensive. The gap in performance between the best and worst MySuper products with award listing is an astounding 4 per cent a year.
Australians shouldn’t be forced into superannuation roulette, particularly when we’re already forced to save for our retirement.
Some industry funds admit openly that their privileged protected position affords them great advantages. Steve Bracks, the chairman of Cbus, told The Australian that the $32bn fund received guaranteed inflows of $100 million every month from default funds, giving Cbus an advantage in investment strategy. Without this “secure funding model”, he said, it would be difficult for industry funds to invest the way they do.
We could not have put this better ourselves. Protectionist industrial frameworks deliver a “secure funding model” to the privileged few, but they also suppress efficiency and innovation. When you don’t have to compete for business, why would you improve products and services?
Super funds’ first responsibility is to their members. The government’s responsibility is to implement policy that delivers better outcomes for consumers.
Old-fashioned protectionist fences around super savings — the unions’ “secure funding model” — have no place in a country that rightly takes pride in creating one of the most competitive modern market economies. The tide must finally turn in favour of competition in the superannuation market. The status quo cannot remain if we want a retirement savings system that will get more Australians off the age pension and more able to fund their own futures. We’ve talked about this issue for almost a decade. It’s time for the government to act.