A shift to a “once only” default superannuation system will spark a battle for new starters, particularly an increase in direct competition, but will also impact the costs of acquisition per member for each fund, according to AustralianSuper.
In a submission to the Productivity Commission (PC) on competitiveness and efficiency of super, the industry fund said that while the increase in competition could deliver member benefits, and that it would impact system costs, the advantage of a “once only” default must be balanced by:
The submission also noted that “first timer default” system decision for employees had a danger of employees defaulting into a poor performing fund and member disengagement could be perpetuated.
“Research indicates that the majority of first time job starters do not actively choose their own superannuation fund. If members continue to be disengaged this default has lifelong implications and potentially more damaging than current shortcomings of the system,” the submission said.
“Consequently, it is essential that there is a significantly rigorous selection process for eligible default funds based on long term net investment performance.”
AustralianSuper said issues that would need to be addressed were:
AustralianSuper also urged the PC to conduct a full cost benefit analysis of any recommendation to understand and assess the costs, benefits, and risks associated with any alternative default arrangement.
It said that any change to the current default arrangements should only be undertaken when there was confidence that the changed system would work better for defaulting members.
The research house has offered a silver lining after super fund returns saw the end of a five-month streak last month.
A survey of almost 6,000 fund members has identified weakening retirement confidence, particularly among those under 55 years of age, signalling an opportunity for super funds to better engage with members on their retirement journey.
The funds have confirmed the signing of a successor fund transfer deed, moving closer to creating a new $29 billion entity.
A number of measures, including super on Paid Parental Leave, funding to recover unpaid super, and frameworks to encourage investment in the energy transition, have been welcomed by the superannuation industry.
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