Shadow Treasurer addresses The Summit

By Lachlan Colquhoun

Shadow Treasurer Chris Bowen has urged a cautious approach to the “best in show” principle for default superannuation accounts advocated by the Productivity Commission, saying that any changes should not “distort investment decisions” and impact on competition.

Speaking at the FSC Summit 2018, Bowen said that directing default super balances into a small number of selected funds had the potential to impact competition in a system which was estimated to grow to more than $9 trillion by 2035.

“We have to get it right,” he said. “We have to ensure that the system does not distort investment decisions and lead to a misallocation of resources and retirement savings.

“The potential for unintended consequences is large.”

In its report last month, the Productivity Commission proposed than an expert panel should select a shortlist of the 10 best-performing default superannuation funds, to be reviewed every four years.

Noting that the FSC had also adopted a “cautious approach” to the 'best in show’ model, the Shadow Treasurer quoted the view from ASFA that the proposal “would dramatically change the funding landscape” and raises questions around innovation, competitive intensity and diversity.

Bowen said any model which dampened competition “would not be in members’ interest.”

“Competition should remain a key guiding principle as a way to encourage funds to be innovative and efficient and to diversify asset maximising long-term returns", he said.

“And then we also need to think about how someone defaulted into a 'best in show’ fund today may not be defaulted into a 'best in show’ fund for life.”

Bowen said he shared the “legitimate concerns” of stakeholders who had raised questions about governance and how an expert panel to pick the 'best in show’ funds should be constituted.

Emphasising that Labor’s approach to superannuation reform was driven by evidence and not ideology, Bowen said the Opposition’s “one criterion” was the best interests of superannuation fund members.   

“I am not interested in feuds between factions of the superannuation industry,” he said. “I am not interested in advantaging one sector of superannuation over the other. I am interested in improving member outcomes. Full stop.”

On the issue of unintended multiple superannuation accounts also highlighted by the Productivity Commission, Bowen called for “remediation” before the problem got worse.

“We have a system where a third of all accounts – about 10 million – are unintended multiple accounts that erode members’ balances by $2.6 billion a year in fees and other costs,” he said.

While cautious on 'best in show,’ the Shadow Treasurer said the Productivity Commission “rightly suggests” that multiple accounts will be a consistent and costly problem “without further reform.”

Bowen also tackled the issue of over-insurance, saying he wanted to ensure that default insurance cover through superannuation delivered value for money and did not erode retirement savings, particularly those of younger members.

“With so many particularly young people paying duplicate and sometimes unnecessary fees and charges and insurance premiums we clearly need to make some changes,” he said.

“Around 40 per cent of all accounts within the superannuation system have account balances below $6,000.

“So we have to get this right.”