Senate Select Committee on Superannuation and Financial Services

Media Release

Roundtable on choice of superannuation funds

Senator John Watson, Chair of the Senate Select Committee on Superannuation and Financial Services, today tabled the Committees report on the evidence it received from twenty organisations, drawn together to identify the best features involved when considering a greater availability of superannuation fund choice.

The evidence received reflects the views of representatives from government, the superannuation industry, service providers to industry, consumer advocates, employer and employee bodies and the major consulting groups.

These people made themselves available at short notice to assist the Committee to gauge views on such important issues as:

• the options for the form of choice;

• preconditions and other measures which would need to be in place prior to the introduction of the choice option;

• other implementation issues associated with the introduction of the choice option, including the arrangements for default funds, insurance, asset allocation and frequency of payments of employee contributions;

• prudential supervision and consumer protection issues;

• investment choice; and

• the timing of the introduction of the choice option.

Senator Watson also said that, although many of these issues were addressed during the previous Committees inquiry into Choice of Fund in 1998, the 1999 roundtable provided an important forum for revisiting the issues, and for exploring the possibilities associated with emerging technologies, such as e-commerce.

In reflecting the overall flavour of the evidence, Senator Watson said that:

From the roundtable discussion and submissions made to the Committee, it was evident that there was not a unanimous position. Views fell into three broad categories; those who support fund member choice with few reservations; those who believe fund member choice will not be in the interests of fund members; and those who believe fund member choice can be made workable subject to a range of conditions being met.

In an atmosphere of spirited discussion, all groups indicated their support for adequate protective measures, including a standardised approach for disclosure of fund details and an extensive education campaign. There was also debate on mechanisms to address the respective rights of both employers and employees.

Senator Watson said that The Committee has not drawn any conclusions from the evidence, nor made any recommendations, but presents this report in order to progress public debate on the complex issue of choice of superannuation fund.

A summary of the views expressed on the major issues is attached.

ATTACHMENT:

OVERALL SUMMARY OF VIEWS ON CHOICE OF SUPERANNUATION FUNDS

Options for the form of choice

The Committee recognised that some participants were opposed to the concept of choice. However, there was a body of opinion that, should it be introduced, the option favoured by the majority was for unlimited choice. Support was also expressed for the award fund as an alternative.

Disclosure and education

Most witnesses agreed, that for consumers to be able to make informed choices, there was a need for an appropriate and standardised disclosure regime and an extensive awareness and education campaign. There was also agreement that the disclosure regime should come well before the commencement date for choice. However, different views were expressed on the timing of the education campaign.

E-commerce

Witnesses generally agreed that e-commerce had the potential to reduce administration costs for some fund members and some employers, particularly if standard protocols were in place. While some witnesses queried Australias readiness for e-commerce, and pointed to the difficulties likely to be experienced by small business, others pointed to the significant cost and other advantages which were likely to be derived.

Other implementation issues

A number of other implementation issues were raised by participants. Witnesses generally supported maintaining the existing practice of the default fund being the relevant award fund where there is award coverage; and where there was no award coverage, the favoured option was that the majority fund in the workplace be the default fund.

The arrangements to ensure continuity of insurance cover, the need to address the problems of cross-subsidies and the questions of the cost and level of insurance cover, were also emphasised by witnesses. A number of witnesses also recommended that asset allocation be a minimum standard for default funds.

Almost all witnesses favoured monthly, or at least quarterly contributions by employers to employee superannuation funds, instead of the current annual contribution. Some witnesses pointed out that there were advantages, particularly for small business, to contribute quarterly to be more consistent with taxation requirements.

Prudential supervision and consumer protection issues

Evidence to the Committee was strongly in favour of appropriate prudential supervision and consumer protection measures, in addition to those provided by full disclosure and adequate education, to address the issues of commission based selling, and other related practices. There was also general agreement on the need for an effective dispute resolution mechanism, with a number of suggestions being made to address the capability of the current mechanisms.

Investment choice

Witnesses drew attention to the increasing number of options for investment choice, but pointed out that the take-up rates varied among funds offering investment choice. The main factor for this appears to be a lack of awareness and education in relation to the range of investment available; other factors include the possible costs involved in switching between investments and account balance.

Timing

While there were many different points of view expressed on the timing of the introduction of a choice regime, there was general agreement that:

• implementation be a staged process;

• the first stage be no earlier than 1 July 2001;

• whatever date is chosen be dependent not only on the finalisation of the legislation and prudential supervision regulations, but also on an appropriate and standardised disclosure regime and the conduct of an appropriate education program;

• the start-up date be 12 months after the finalisation of the above (including the CLERP 6 reforms) as well as other measures being in place such as standard protocols for e-commerce); and

• there was a probable need to defer the extension of choice to defined benefits funds because of the difficulties which would be involved in identifying what should be transferred and when.

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