Australia’s financial services regulators need to deal with superannuation fund underperformance before members find themselves stapled to particular funds, according to industry funds body, the Australian Institute of Superannuation Trustees (AIST).
As the superannuation industry began digesting the Government’s Budget announcement which would see people stapled to a fund throughout their working lives, AIST chief executive, Eva Scheerlinck said the question of underperformance needed to be dealt with as a priority.
Her comments came as senior superannuation industry executives suggested that particular superannuation funds stood to be advantaged by stapling, particularly those which covered young people entering their first jobs even before leaving school such as REST and HostPlus.
Scheerlinck said her organisation was concerned “that millions of members could be stapled to an underperforming fund with the scheme relying on disclosure to get people to switch to a better fund”.
“We know from research – including that produced recently by the Australian Securities and Investments Commission (ASIC) – that mandated disclosure and warnings have been proven to ineffective in influencing consumer behaviour. Moreover, relying on disclosure only to influence behaviour puts the onus on consumers, rather than the regulators, to deal with underperformance,” Scheerlinck said.
“We have seen how poorly disclosure works in the electricity market, where consumers remain for years on uncompetitive pricing plans, despite being warned that there are better deals elsewhere.”
Scheerlinck also pointed that not all superannuation funds were the same, and that some were specifically tailored to cover high-risk workplaces such as the electricity industry.
“The stapling proposed does not address the risk of changing industries and having insurance that is no longer appropriate,” she said
“Moreover, stapling to one fund for life will provide even greater structural incentives for marketing super to young, disengaged Australians where they could be sold into potentially underperforming funds. And if you are stapled to a dud fund, it won’t matter how many workplaces you go to, you will still be in a dud fund, whereas under the existing default system, most disengaged workers will be automatically placed into a default fund, which on average outperforms.
“In a compulsory super system, good disclosure is essential, and this includes providing simple, accessible tools for consumers to make informed decisions about their super. But for all the shortcomings of disclosure described above, naming and shaming won’t go anywhere near to fixing systemic underperformance in our super system, which is a job for the regulators.
“So, there is a real danger when you are stapling people to a product and relying only on disclosure alone to protect their interests.”