PRODUCTIVITY COMMISSION

By Lachan Colquhoun

The audience at a Summit 2018 panel discussion on the Productivity Commission’s recent recommendations on superannuation and life insurance were divided in their views on the proposals.

A series of questions polled through the Summit app delivered some diverging views on changes to super recommended by the Commission in its controversial report issued in May.

While 20 percent of the Summit audience “strongly agreed” and 20 percent agreed that insurance within superannuation eroded balances by too much, 27 percent disagreed with the statement and 7 percent “strongly disagreed.”

Asked if they believed that the proposed 3 percent cap in insurance premiums in accounts holding less than $6000 is appropriate, 46 percent either agreed or strongly agreed while 26 percent took a different view, either disagreeing or strongly disagreeing.

Productivity Commission deputy chair Karen Chester, one of the panellists at the Summit session, defended the report and in particular the 'best in show’ proposal for default funds to be channeled into a group of 10 selected funds.

“’Best in Show’ won’t lead to Armageddon or an oligopoly,” she said.

“At most around $20 billion of the $148 billion in annual contributions would be up for grabs.

 She emphasized that the report did not say the super system was “broken,” instead presenting “clear evidence of room for significant improvement” in the policy architecture.

There was “entrenched underperformance” in sections of the super industry which showed that the system was “not an across the board success.”

“Averages and medians” for performance concealed too much variation between funds, Chester said.

She said that economies of scale in the industry were not being passed on to members “and that is a red flag.”

“How does a trustee board allow this underperformance to happen?” she asked, saying that the 'best in show’ proposals would lead to the exit of underperformers from the industry, which in a perfect world would “shepherd” members to better performing funds.

Chester was also critical of the quality of data held by the super funds, saying a project to create data on fund performance over the last 12 years had “nearly killed three team members.”

Another panel member, BT’s Head of Workplace Super Matthew Englund, said his organisation was “fully supportive of much of what is in the report” such as opening up the default super market to competition.

“We fully support default and also 'best in show’ but the right criteria should be included,” he said.

“We need to make sure we have the right independent experts making the call.”

While agreeing that the erosion of super balances by duplicate accounts and unwanted life insurance was unproductive for the system, panelists also put forward positive views of the role of insurance within super.

“Insurance in super is a successful means of delivering cover to many people,” said Jeremy Houghton, the Head of Strategy and Corporate Affairs at AIA.

“It protects the retirement balances for those who are unfortunate enough to suffer an event.”

The Productivity Commission’s Karen Chester said more work was being done on the report as the commission considered 94 post draft submissions and sent out a “second chance survey” to fund chief executives.

All this would be combined in a supplementary paper due to be released later this year, which would be followed by a technical workshop with industry.