Chant West agrees with the main two findings of the Productivity Commission report – there are too many unintended multiple accounts and too many people are defaulted into poor-performing funds. And since these are the main problems, any changes to the system should focus on addressing these two issues.
Indeed, Chant West believes that much of the commentary on the Productivity Commission report has missed the most important proposed change. Head of Research, Ian Fryer, says, “The most important change that has been recommended is not the Top 10 ‘best in show’. It is that when someone changes jobs, they keep their super fund and don’t start a new one unless they choose to.”
“Currently, when someone starts a new job, a new super account is opened for them in their new employer’s default fund unless they already have an account with that fund or they tell their employer they want a different fund. This arrangement has led to about 10 million multiple accounts and costs about $2.6 billion annually, according to the Productivity Commission. This must change!” Mr Fryer said.
“Keeping your super fund when you change jobs is the obvious solution. It’s unfortunate that the simple wisdom of this proposal has been overshadowed by the controversy over ‘best in show’. It would be a crying shame if this change was shelved because of its linkage with ‘best in show’.
“Yes, we need a solution for the default fund when someone starts their first job, which is what 'best in show’ tries to deal with, but let’s agree to stop making new accounts by default and then work towards a solution for that first job. Indeed, rather than trying to come up with a top 10 ‘best in show’, we should rather focus on getting rid of poor-performing and sub-scale funds and ending up with say 30 or 40 really good funds. APRA’s proposed elevated outcomes test will push us down that path and should be supported by government as a matter of priority.
“The good thing about having more than 10 funds is we can have a genuine diversity of strong funds – some focusing on younger members and others older members, some providing insurance and education specifically designed for a particular industry, and some providing really innovative retirement solutions. If you only had 10 funds, you would miss out on this kind of diversity.
“We cannot let the problems of ‘best in show’ and concerns from some quarters about the growing influence of industry funds distract us from dealing with the main problems to be fixed – too many accounts and members defaulting into poor-performing funds. There is too much at stake for us to take our eye off the ball!” Mr Fryer said.
Watch the video where Mr Fryer discusses these issues.