Everyone should be able to choose their own fund.
Imagine trying to buy an apple only to be told by the shopkeeper you can only have one covered in blemishes.
“Nope, put that tasty looking apple back – because you work in retail.”
While this sounds bizarre, it is exactly what some people are told when trying to pick a super fund. People are stopped from having a choice of fund because employers and unions in some industries have signed collective agreements which bar employees from picking their own fund.
The government has re-introduced legislation to lift the strange ban on competition that prevents some people from being able to choose where their super savings are invested. It’s time to get rid of this archaic restriction that stunts competition, forces people into under-performing funds and results in multiple accounts.
Like selecting apples, there are lots of reasons why people may want to choose a fund. Some funds have better returns, insurance, or customer service. Others offer low fees or tailored investment options. Maybe you want to choose a fund that invests in line with your ethics.
So how did this denial of choice come about? It’s a hangover from another era when people mostly worked in one industry for their entire life. Unions and funds thought they could look after people best if everyone in the same industry or workplace contributed to the same fund. They could then keep an eye on things, like employers not paying superannuation.
That might have made sense 25 years ago, but it doesn’t today, with people more likely to change jobs and drop in and out of full-time employment. When contributions stop, it’s virtually impossible for a fund to determine whether an employer is not doing the right thing, or whether someone has just changed jobs and opened a new superannuation account.
TWUSuper has been arguing against giving people choice, but in evidence before the senate committee, even they acknowledged they can’t distinguish between an employer not paying and a member’s super going elsewhere simply due to moving to a new employer.
By contrast, the ATO is now much better placed to track unpaid super, because it can see the tax receipts, or lack of them, from some employers. In the 2018/19 financial year alone the ATO contacted 22,000 businesses about non-payment of super, reclaiming $805 million in payments.
Opponents to super choice say the changes will help super funds with slick advertising campaigns drag people out of safe defaults into underperforming investment options.
We agree that more needs to be done to assist people to join and stay in well-performing funds. We estimated that in the 2018/19 financial year about 200,000 people were defaulted into a poor performer, and this is a problem that the default system could do much more to prevent.
The Productivity Commission recommended a suite of changes. For example, it thought everyone should know who the best performers are and that those who don’t make an active choice should be defaulted into the better ones. This is a good idea that the underperformers in the system are doing everything in their power to block.
Some opponents of super fund choice have tried to construct an argument that these laws represent an attack on the concept of ‘collective choice’ – the choice exercised by employees when they vote to accept the terms of a workplace agreement.
But this argument has a serious flaw. The idea of ‘collective choice’ has its roots in the union movement. It comes from an understanding that negotiating as a collective will deliver better outcomes for the whole. Sometimes this means trading away a better outcome an individual could achieve for a bigger collective gain.
Super fund choice doesn’t undermine this principle in any way. Employee representatives can still negotiate for a fund or list of funds to be the default for an industry or workplace. But that fund may not be appropriate for some, and by giving people a choice you make sure they are not subject to the tyranny of the majority.
This already happens in most industries, where there is individual freedom with the benefits of collective bargaining.
Forcing people to join an inappropriate fund can cause serious harm: they may have to pay for insurance that isn’t designed for their work type, or be defaulted into an investment strategy that is wrong for their age.
The best funds haven’t sought to trap their members, they know they can keep them by offering a quality service. The law should be changed to allow people to seek better financial returns, improved customer service, or consolidate multiple accounts.
We built a market for superannuation, it’s time to make it work for people.