Default Superannuation Funds in Modern Awards

• Default superannuation arrangements for those employees who derive their default superannuation product in accordance with modern awards have provided market stability, and net returns of default funds have generally exceeded those of non-default funds. However, the arrangements could be improved.
• The primary principle governing default superannuation arrangements for modern awards should be the promotion of the best interests of employees.
  • The selection of default products for awards should be merit rather than precedent based, and should encourage improved performance through competition.
• The criteria that the Australian Prudential Regulation Authority will use for MySuper product authorisation provide a first filter for the selection of products.
• The Commission recommends a set of non-prescriptive factors to be considered as a second stage 'quality filter' when selecting default products for modern awards.
  • The factors relate to: investment objectives and performance (as primary factors); fees and costs; governance practices (particularly mechanisms in place to deal with conflicts of interest); insurance; intra-fund advice; and administrative efficiency.
• The process for the selection and ongoing assessment of default products in modern awards should be reformed. Decisions on the listing of default products should be made by a new Default Superannuation Panel within Fair Work Australia (FWA).
  • The panel should consist of the FWA President (or delegate) and an equal number of full-time members of the tribunal and part-time independent members appointed for their expertise in finance, investment management or superannuation advisory services.
  • The part-time members should not be representatives of organisations or parties to awards, but should be appointed as independent members based on expertise.
• Superannuation funds should be given standing to apply to, and be directly heard by, the panel, in order to have their products assessed for listing in modern awards. The panel should transparently assess cases on their merits, using the factors identified by the Commission, and any other factors deemed relevant by the panel.
• The panel should list all MySuper products for each modern award that meet the factors for consideration (which may prove to be a long list). No express limit should be placed on the number of products that may be listed in any given modern award.
  • The panel should identify in each modern award, wherever possible, a small subset of those listed products judged as best meeting the interests of the relevant employees.
• The panel should conduct ongoing assessments and undertake a periodic wholesale reassessment of the products listed in modern awards.
• The process should apply at least for the medium term, given the uncertainty regarding the number, mix and quality of MySuper products to be offered from 2013.
  • The process should be reviewed in 2023 and this review should include consideration of the appropriateness of allowing employers to select any MySuper product as a default superannuation product.

Background information

Phillip Chindamo (Assistant Commissioner) 03 9653 2133