Despite the victory lap done by the Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume, and the Financial Services Council (FSC), around the passage of the Government’s choice of superannuation legislation, industry default funds have little to fear from the changes.
Indeed, most industry fund executives would have understood for many years that the clock was ticking on superannuation arrangements tightly linked to industrial agreements and awards with many of them such as AustralianSuper having long since adopted marketing and communications strategies aimed at membership well beyond award-based employees.
The celebratory tone adopted by the FSC is hardly surprising in circumstances where the organisation had been campaigning for the change for well over a decade on the basis that many workers were being forced into the award-based default fund arrangements to the exclusion of the FSC’s retail fund constituents.
And, in truth, such arrangements were not universally admired and accepted by all industry superannuation funds, with many of those which did not have award default fund status arguing that they were being placed at a distinct disadvantage to those which did.
In short, in the age of social media and the emergence of funds directly targeting tech-savvy rather than industrial relations-savvy millennials, the awards-based default superannuation regime had begun to look like a serious anachronism.
The problem, of course, is that what should have been a fairly straightforward promulgation of long-standing policy on the part of the Morrison Federal Government became more political than it should have been because of the persistent niggling and rhetoric of a section of the Liberal/National Party backbench about the future of superannuation.
And, unfortunately, the Assistant Minister herself has been heard to echo some of that rhetoric, giving a particularly partisan tone to what should be a reasonably agnostic exercise in modernising the superannuation regime.
As the Government moves further towards releasing the report developed by its Retirement Income Review panel it is certain that the level of political rhetoric around superannuation will increase and that the divide between the major parties on what should sensibly be treated as a bipartisan policy area will become wider.
The simple facts of the matter with respect to award-based default funds is that they had their origins in the very beginning of the processes which led to the creation of the superannuation guarantee (SG) and reflected the Australian workforce as it existed in the late 1990s rather than in the 2020s.
In the intervening 20 years, union membership has declined by close to 40%, from nearly 50% of the workforce in the mid-1980s to about 15% in 2019 and this has coincided with radical changes to the make-up of the workforce including high levels of casualisation and the emergence of the so-called ‘gig’ economy.
So, the bottom line for industry funds with award default status is that they were dealing with an ever-decreasing base from which to draw their SG inflows and an imperative to recruit and retain members by other means. What is more, most of them would be fully aware of the fact that, notwithstanding the new legislation, the activities of trade union delegates and recruiters will ensure any drift of industrial membership is minimal.
The pragmatic bottom line is that by almost any measure, the investment performance of industry superannuation funds has been better than that of retail funds over most of the past 15 years. On that basis, the raw data says well-performing default funds have little to fear and probably much to gain from the Government’s choice regime.