Banning workers from choosing their own super fund has no place today
Super members are regularly encouraged to check their fund's performance and ensure their hard-earned savings are being maximised.
If it turns out the fund is a dud, the advice is to switch to a better fund. But for 1 million employees that's not an option at present. They are locked into a fund chosen by their employer and union as part of an enterprise agreement.
This is not the case for all enterprise agreements and industrial awards. Most employees have the right to choose their own fund. If they don't exercise that choice, their contributions go into their employer's default fund. The employee is free to remain with it or switch to another fund.
Last year the Fair Work Commission threw out Kmart's union deal, in part because it forced employees to use the retail industry fund Rest, ruling such restrictions left workers worse off.
Xavier O'Halloran, head of campaigns and advocacy at Super Consumers Australia, says barring employees from picking their own fund has no place in a modern super system.
"Rest is an okay fund but there are funds that have performed better out there and [the deal] denied people the ability to choose. I can't see any situation where that kind of trade-off and hard rule makes any sense. Consumers need to be given that choice," says O'Halloran.
He says denial of choice has left members accumulating multiple super accounts, multiple fees and multiple insurance premiums. It also undermines competition.
The Productivity Commission inquiry into the efficiency and competitiveness of the super system calculated a cost to the system as a whole: a third of MySuper default accounts, about 10 million, are unintended multiple accounts that collectively erode members' balances by $2.26 billion a year in unnecessary fees and insurance.
"Holding multiple accounts can reduce a typical worker's balance by about 6%, or $51,000, and an underperforming MySuper product can reduce a typical member's balance by 45% or $502,000 by the time they retire," the commission reported.
O'Halloran says it's not known on what basis employers and unions have mandated a particular fund.
"It's not clear that it is necessarily based on merit," he says. "In some cases it has led to good outcomes but in others it hasn't. Basically, it has denied members choosing a far superior fund."
"Good super funds haven't sought to deny their members choice, or the choice to leave. They've fought to keep that membership on side and that's a good discipline all funds should have. They shouldn't be getting them through force."
Thanks to legislative changes called Your Super, Your Choice, this restrictive practice is about to end. From January 1, 2021, all employees covered by new enterprise agreements will have the ability to choose their own super fund.
"If you already have choice of fund, then that will continue. If you don't have choice then the law change only applies to new workplace determinations and enterprise agreements made on or after January 1," says O'Halloran. That means existing arrangements may take a few years to work their way out of the system.
However, there's no point in jumping ship just because you can, he says. Some restricted funds perform consistently well.
"Employees may well be in one of the better funds already. So it's not necessary to switch if you're in a good fund already."
The Federal Budget released in October also introduces the proposal that, from July 2021, if an employee does not nominate an account at the time they start a new job, employers will pay their superannuation contributions to their existing fund.
Super Consumers Australia estimates about 200,000 people have been defaulted into poor performers and it is a problem the default system could do much more to prevent.
"If you are checking your fund, a good starting point is usually fee costs. The average across the industry is around 1%. There are funds that are lower than that and are probably on the better side," says O'Halloran.
To do comparisons, look at the different funds' MySuper dashboard. It provides an invaluable snapshot of how the fund is performing, plus other key information. Funds are obliged by law to provide it.
It's a different matter for choice of investment options. "There are higher-risk options which may mean the returns are more volatile over time," says O'Halloran. "If that's something that affects you, and you might be calling on some of those funds in the near future, or you are near retirement, you need to weigh up whether a higher-risk, higher-return trade-off is right for you."
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