Stage 2: Alternative default models

Draft

Draft report

This draft report was released on 29 March 2017. You were invited to examine the draft report and to leave a brief comment or make a written submission by 28 April 2017.

A final inquiry report from stage 2 will not be issued separately. The stage 2 inquiry will be incorporated into and finalised as part of the stage 3 inquiry.

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Download the overview

Download the draft report

 

To assist with the development and assessment of alternative default models, the Commission undertook an experimental survey of the general public. This supplement provides information about the survey and presents results.

  • Superannuation has evolved much since compulsory superannuation was first introduced a quarter of a century ago. Today's default arrangements evolved historically within the workplace relations system, and provide a safety net for employees that don't or cannot make a decision in a world of compulsion.
  • So after 25 years, this Inquiry is a timely opportunity to look at potential ways to introduce more competition into a system that benefits from a large flow of mandated superannuation contributions, and much of that from disengaged members.
  • Complementary policy action (including to extend genuine member choice to all employees) is needed to deliver the full potential benefits of member-driven competition under the models we identify and even under current default arrangements. The freedom to make choices is necessary to realise the benefits of competition.
  • Two-thirds of members stick with their default fund. If the system is going to rely on defaults, it needs to guide members to products that at a minimum seek to maximise long-term net returns.
  • In this draft report the Commission has developed four alternative models that are likely to outperform a baseline of 'no defaults' on member benefits and competition.
    • They try to address the core problem in superannuation — the sheer complexity of decision making coupled with compulsion — by increasing the availability and quality of information or nudging choice to a smaller set of high-quality products.
    • But these interventions come at a cost, and each model has different relative strengths and weaknesses.
  • Members who do not exercise choice should be allocated to a default product only once. The current system's propensity to create multiple accounts is an egregious systemic failure. It warrants more than the incremental remediation to date.
    • This approach would result in a smaller pool of employees being defaulted each year, but it should be sufficient to generate competitive dynamics.
  • There should be a government-run centralised online information service, with universal participation by employees and employers, to facilitate more efficient allocation of default members to products.
  • A centralised clearing house (akin to New Zealand's), while a more ambitious undertaking, would have wider and more enduring member benefits.
  • Member outcomes would also benefit from more transparent disclosure by funds regarding merger considerations, to hasten the exit of underperforming funds.
  • Certain reforms indicated in this report will be examined further in the stage 3 review.

This report consists of an overview, eight chapters and two appendices.

Chapter 1 provides background information.

Chapter 2 outlines the Commission's assessment framework for assessing alternative models.

Chapter 3 outlines the Commission's approach to the development of alternative models for assessment, including the common foundations across all models.

Chapter 4 details the Commission's no defaults baseline that alternative models will be compared against.

The next four chapters examine the alternative models against the assessment framework outlined in chapter 2.

Chapter 5 examines the assisted employee choice model.

Chapter 6 examines a fee-based auction model.

Chapter 7 examines a multi-criteria tender model.

Chapter 8 examines an assisted employer choice (with employee protections) model.

Appendix A outlines the Commission's public consultation process.

Appendix B provides background on retirement income systems and default arrangements in Chile, New Zealand, the United Kingdom and Sweden.


 

Download the infographic

Regulation of Agriculture infographic. Text version follows. 

Super easy superannuation (Text version of infographic)

For all Australian workers – super will matter for living the retirement lifestyle you want.

But many of us find it complicated and hard to navigate and don’t engage.

Two thirds of us have super contributions going into a fund that we didn’t choose ourselves – or in other words, a default product.

Our draft report explores ways to:

  1. Simplify super choice
  2. Improve default products
  3. Prevent multiple accounts.

To do this, we have developed four new possible models.

One model where an employer picks a better default product for you with 2 handy lists to guide them.

Two models where funds compete in an auction or tender.

And one model where new comers to super make their own choice, with a handy shortlist to guide them.

We want to hear from you, and what you want from your default super.

Read the draft report and make a brief comment.