The committee received eighteen submissions and one supplementary submission to the inquiry and evidence received at the public hearing further illuminated the positions taken by the submitters.
Most of the evidence received focussed on the consumer choice issue – that the bill had either a positive or negative impact on workers by allowing individual choice of superannuation fund. Support or opposition to be bill was essentially based on this question. However, some submitters, even if supportive of the individual's right to choose, were more nuanced and argued for further reforms or amendments. Evidence was also received – mostly by UniSuper – about the bill's potential impact on defined benefit schemes.
This chapter reviews the positions put by the interest parties and provides committee comment on:
the individual choice of fund;
the bill's potential impact on defined benefits; and
further considerations raised by those interested parties.
Support for the bill
Mr Luke Zhou
Mr Luke Zhou supported the bill's emphasis on consumer choice and recommended further changes:
This legislation should be supported in principle, as it allows all employees to have choice of fund, benefiting young workers in particular
The legislation should be amended in the following aspects:
All employees should receive a modified choice of fund form in a timely manner after the legislation is in force;
The choice of fund form should be modified so that employees elect to contribute to only one superannuation fund, with consolidation of accounts to be undertaken by the employee’s elected fund;
There should be a uniform start date for all workers, regardless of the date an enterprise agreement is made, to limit confusion for employers and employees.
These amendments are warranted to improve transparency and communication for employees, who are often disengaged from their superannuation. It will also give effect to the Financial Services Royal Commission’s recommendation for ‘stapling’ of accounts.
Equity Trustees supported the proposed amendments and argued that the bill ensures that all employees under workplace determinations or enterprise agreements have the opportunity to select their own superannuation fund.
Equity Trustees encouraged the Government to consider extending choice to all employees and proposed that further legislation be enacted to ensure all employees are provided the opportunity to select a superannuation fund. Equity Trustees believed that this will remove the propensity for multiple superannuation accounts (unless they are the result of a conscious member choice) and ensure increased member engagement with their superannuation which will lead to improved retirement outcomes for more Australians.
Chartered Accountants ANZ
The Chartered Accountants ANZ (CAANZ) supported the bill:
Overall we support superannuants right to choose their preferred retirement vehicle both before and after retirement. It is unfair that all retirees and some employees have complete freedom to choose their own super investment whilst others are denied this independence.
However, CAANZ believed that the bill should not be enacted without firm commitments by government to implement other important reforms. CAANZ argued that:
choice of super fund makes addressing widespread 'information asymmetry' between consumers and super funds an urgently priority that must be addressed by government and by the superannuation industry;
access to quality and timely financial advice has always been difficult but the recently enacted financial advice reforms will make this task even more difficult; and
an urgent solution to this problem needs to be identified and put in place.
Super Consumers Australia
Super Consumers Australia (SCA) supported the proposed legislation. They support Australians:
having the freedom to choose their own superannuation fund;
the opportunity to pursue better financial returns, improved customer service and lower fees and consolidate their accounts to avoid paying multiple sets of fees and insurance premiums.
SCA argued that imposing constraints on people’s ability to make their own financial decisions damages competition and this weakens incentives for superannuation funds to deliver better outcomes for their members. Moreover, denying a choice of fund exacerbates many of the issues confronting the superannuation system, such as duplicate accounts, inappropriate insurance and consumer disengagement.
SCA argued, however, that giving people choice alone will not in itself drive competition in the superannuation market. They argued that further pro-consumer measures which break down information asymmetry and help people end up in better performing funds are needed and that there is an urgent need to address the lack of competition in the default system. Furthermore, other consumer protections should also be introduced which will improve consumer decision making.
that the Federal Government:
pass the bill without amendment;
adequately resource ASIC to develop a consumer-facing comparator tool for superannuation; and
follow the Royal Commission implementation roadmap by introducing anti-hawking measures by June 2020; and that the
that the Senate Economics Committee recommend:
that the Federal Government urgently legislate a 'right to remain' test in the SIS Act Regulations which requires the net return of a MySuper or choice product over a rolling eight year period not to underperform by more the 0.5 percentage points the return of a tailored (by asset allocation) benchmark portfolio. This benchmark portfolio should be constructed with listed indexes, as recommended by the Productivity Commission; and
that funds be required to publish simple, single-page product dashboards for all superannuation investment options and standard machine readable versions of this data be made available by June 2020.
Financial Services Council
The Financial Services Council (FSC) has consistently supported choice in superannuation, and have advocated for the removal of restrictions on superannuation choice in workplace agreements. Accordingly, the FSC strongly supported the measures contained in the bill.
At the public hearing, the FSC summarised their position clearly:
Fundamentally, there is no justification for preventing up to one million Australians from choosing a superannuation fund. Repeated reviews have found that restricting choice provides poorer outcomes for superannuation members. The Productivity Commission found that restricting choice contributes to the proliferation of multiple accounts and associated duplicate fees and insurance premiums. The same report found that an individual with two accounts over the course of their working life could be six per cent worse off at retirement and recommended removing restrictions on choice of fund. The financial system inquiry also found that restricting choice contributed to employees holding multiple accounts and that it was likely to promote disengagement with superannuation. The Fair Work Commission has also recently raised concerns with restricting choice, with the deputy president noting that the proposed restrictions for Kmart employees would be less beneficial for workers than allowing choice of fund. The commission did not find that there were offsetting benefits that would flow from restricting choice.
The FSC also supported:
employers being required to provide choice of fund forms to employees under new agreements from the start date; and
the changes not applying to certain defined benefit funds.
The FSC further recommended:
Parliament support passage of the bill; and
the bill be amended so that all employees on existing or expired agreements must be granted choice of fund by a certain date, for example one year after royal assent, to provide certainty to employers and ensure workers are not disadvantaged.
Self-Managed Super Funds (SMSF) Association
The Self-Managed Super Funds (SMSF) Association expressed concerns about employees who do not have a free choice of superannuation fund. SMSF argued that constraining employee choice has negative effects of disengaging people from their superannuation, reducing competition and increasing superannuation account proliferation.
The SMSF Association believed that the ability for all employees to choose their superannuation fund is an import ant element in promoting an efficient and competitive superannuation sector. In addition, SMSF believed that all employees should be provided information about what choices they have in the superannuation sector available to them.
SMSF argued that arrangements which do not give employers or employees any choice as to where superannuation contributions are made create a multitude of issues, the most significant being account proliferation and the consequent multiple set of fees and insurance premiums which continually erode superannuation balances.
Australian Small Business and Family Enterprise Ombudsman
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) acknowledged the importance of individual employees being empowered to make key decisions around their retirement savings. However, the ASBFEO argued that this must not be at the expense of small businesses and family enterprises who may suffer under an additional administrative burden to comply with the 'Choice of Fund' obligations for compulsory superannuation guarantee contributions.
ASBFEO observed that an Enterprise Agreement (EA) or Workplace Determination (WD) remains in force past its nominal expiry date. Small businesses whose EAs and WDs were made before 1 July 2020 will continue on 'as is' until the agreements and determinations are terminated or replaced, or there are no remaining employees subject to them. This 'grandfathering' will, the ASBFEO argued, effectively exempt these small business employers from the 'Choice of Fund' regulations until some future date.
ASBFEO argued that it is imperative that strong, education and publicity mechanisms should be implemented urgently to inform small business owners about the amendments. Additionally, relevant agencies such as the Australian Taxation Office (ATO) and Fair Work Commission (FWC) should provide assistance to small business employers on and how to implement this change.
Colonial First State
Colonial First State (CFS) argued that the reform proposed by this bill should be seen in the context of the changes to the default system put forward by the Productivity Commission in its final report Superannuation: Assessing Efficiency and Competition. In its findings and recommendations, the Productivity Commission sought to ensure the interests of members were given primacy.
CFS noted that the Productivity Commission concluded by recommending:
default superannuation accounts should only be created for members who are new to the workforce or do not already have a superannuation account (Recommendation 1); and
a single 'best in show' shortlist of up to 10 superannuation products should be presented to all members who are new to the workforce (or do not have a superannuation account), from which they can choose a product (Recommendation 2).
The Productivity Commission believed, according to CFS, that a new system which placed members at the centre of the process, removing inefficiencies and the influence and interests of agents, would achieve better member retirement outcomes and a more efficient and competitive superannuation system.
CFS broadly supported these recommendations and note the Government has committed to implementing Recommendation 1 and is actively considering how best to reform default fund selection as expressed in Recommendation 2.
CFS argued that passing the bill is critical to achieve the necessary reforms initially envisaged by the Choice of Fund model and which are complementary to the systemic improvements proposed by the Productivity Commission in its assessment.
Australian Chamber of Commerce and Industry (ACCI)
The Australian Chamber of Commerce and Industry (ACCI) supported the bill's provisions that it believes they will result in employees under new enterprise agreements and workplace determinations being able to have a choice of super fund.
ACCI argued that extending choice to employees under new rather than existing enterprise agreements and work determinations will minimise the cost and compliance burden on business while delivering the potential for improved outcomes for individual employees.
ACCI also challenged the view that many Australians lack financial literacy and argued they are more than capable of exercising responsible choice:
Whether that is into another industry fund or another retail fund or whether it's the same fund, Australians—or a proportion of Australians—are a lot more financially literate. There is a lot more engagement with the stock market by more people and I think you had the self-managed people in earlier. There's a lot more interesting ones—personal wellbeing—a lot more differentiation by the stage of life you're at and your financial goals. We struggle to see why working Australians across the board don't have the right to exercise those choices if they wish to.
ACCI does not share the concern about the potential administrative burden that mandatory choice may have on business as the introduction of SuperStream has significantly reduced the administrative costs of superannuation choice.
Finally, ACCI argued that the passing of the bill should have minimal administrative costs on business if it is introduced for new rather than existing enterprise agreements.
Australian Institute of Superannuation Trustees
Australian Institute of Superannuation Trustees (AIST) was more ambiguous in its support. AIST supported the principle of choice in superannuation but highlighted evidence that members in the choice segment are at risk of having materially lower retirement incomes.
AIST argued that choice must only be provided in a way that does not leave consumers worse off and must operate in an environment of meaningful disclosure and consumer protections. In summary:
The nub of AIST's position today, as it has been for many years, is that this bill jeopardises the superannuation entitlements of people receiving more than the superannuation guarantee, and that the law—that is, the removal of the SG [Superannuation Guarantee] exemption from EBAs [Enterprise Bargaining Agreements]—shouldn't apply in circumstances where people receive additional benefits under an enterprise bargaining agreement.
AIST proposed that the existing exemption remain for enterprise agreements where superannuation benefits in excess of the community standard are negotiated between the employer and their employees.
As an example of such a fund, AIST advocated that defined benefit funds, such as UniSuper, should be exempted:
Members in DB [Defined Benefit] schemes are clear examples of people receiving higher benefits under an EBA, higher employer contributions or nominal employer contributions in schemes that promise a guaranteed retirement outcome and do not involve members wearing investment risk.
AIST also argued that this bill would not have any impact whatsoever on the proliferation of unnecessarily duplicated accounts.
Opposition to the bill
Australian Council of Trade Unions (ACTU)
This Australian Council of Trade Unions (ACTU) opposed the bill arguing that it is an attack on workers’ rights to collectively bargain for a superannuation fund in their interests, and abolishes the ability for workers and their employers to agree to specific benefits only available with single fund workplaces.
The ACTU also believed that the bill undermines action against unpaid super undertaken by workers, unions and their funds.
The ACTU's concerns also extend to the bill's effect on defined benefit schemes. The ACTU noted:
Should the bill pass, some superannuation funds would need to re-evaluate how and if they could offer their products. UniSuper is one of the best performing super funds in the country. It offers one of the rarest and most valuable retirement products available, which is an open defined-benefits scheme. This is an incredibly generous product which guarantees retirement incomes for life, and that is why the National Tertiary Education Union bargains for this fund for their workers. Its viability is centred on longevity risk of each member and the fact that it is compulsory. If workers were to choose to be a member then this would be evidence of self-selection into the fund and thus would increase the risk of the product failing.
Should the bill pass, the fund could seriously reconsider the offering of the product to its members and potentially close off entry to one of the most beneficial outcomes for hundreds of thousands of members. The ACTU opposes this bill and is seeking amendments which would protect workers in circumstances where they would be better off having a single fund.
Electrical Trades Union of Australia (ETU)
The Electrical Trades Union of Australia (ETU) opposed the bill which they see as unfairly taking away the rights of workers to bargain for their preferred super fund in the workplace.
The ETU argued that superannuation is an initiative of working people and where workers choose to negotiate a default fund with their employer, in their own best interests, and is not something that should submit to government intervention. The ETU pointed out that each time an industrial instrument is re-negotiated the workforce has ample opportunity to review the fund and determine any changes they may wish to make.
Maurice Blackburn Lawyers
Maurice Blackburn Lawyers (MBL) if not outright opposed to the bill, saw it as a missed opportunity to implement reforms to the existing superannuation regime. That is, to ensure that employees are not victims of the abdication of responsibilities in relation to the payment of superannuation by unscrupulous employers.
Accordingly, MBL recommended that the Committee consider where the following matters of consumer protection could be embedded in the bill:
a legislated right of action for damages caused by employer’s failure to make on time superannuation guarantee contributions;
a legislated obligation on employers to conduct due diligence over any default superannuation fund; and
consumer protections when choice is available.
McKell Institute Victoria
The McKell Institute (the Institute) was concerned that the bill will not achieve any positive outcomes believing that the evidence available suggests the bill is more likely to undermine its core objectives; that is to maximise retirement savings.
Overall, the Institute found the fewer the restrictions or limitations placed on individual choice, either by employees or by employers, the worse the overall performance outcomes were for employees. The Institute argued that of the six main cohorts identified, employees under agreements with ‘collective choice’ or ‘group choice’ were the most likely to be placed in high-performing funds and almost the least-likely to be placed into under-performing funds.
The Institute argued that many employers are capable of selecting a good default fund for their staff and there is evidence that with less restriction on employers comes an increased risk of a poorer selection being made.
The Institute argued that, if passed, the bill would effectively inhibit one form of choice, collective or group choice, in favour of another, individual choice, without clear evidence that the latter is more effective in driving better outcomes. In doing so, the Institute argued that it will put more Australians at risk of ending up in an under-performing fund and limit mechanisms for ensuring ongoing accountability of and improved performance by superannuation funds.
Industry Super Australia (ISA)
Industry Super Australia (ISA) support choice of funds as an inherently good thing and generally supports the bill's direction. However, ISA argued that informed choice was essential and that this cannot currently be guaranteed:
…helping consumers to make good choices remains an ongoing challenge. A good place to start is simple product disclosures for choice super products. ISA's position is that for choice to be genuinely available to consumers it needs to be informed choice. At this point in time we don't have an environment of informed choice.
ISA recommended that there be a presumption of choice unless it can be demonstrated that it is in an employee's interest to restrict choice of fund through an EBA.
ISA noted that most workers do currently have choice of fund citing its 2017 analysis of a sample of enterprise agreements ratified by the FWC. It found that 82 per cent of all employees covered by agreements had no restriction on choice of fund and that only 1.9 per cent of the workforce had some form of restriction.
ISA argued that the success of the system is appropriately measured by the quality of funds that are selected as default funds and that the Productivity Commission’s findings recognise that in this respect the system has performed well to date.
ISA believed that a critical factor in the system's success is ensuring that employers and workers are supported through the vetting of default funds by the Expert Panel of the Fair Work Commission (FWC) to ensure that only high quality and appropriate funds receive employer superannuation contributions on behalf of those employees who do not exercise choice.
ISA argued that a strengthened default system is critical to achieving this outcome and government should take the necessary steps to appoint members to the FWC Expert Panel to enable the expert panel to convene and begin the process of ensuring that only high-quality funds are named as default funds in modern awards.
Transport Workers Union Superannuation (TWUSUPER)
TWUSUPER argued that the changes contained in bill would not improve retirement outcomes or transparency but would instead cause detriment to many Australians, including members of TWUSUPER, who have chosen the deemed collective choice provisions of the Superannuation Guarantee (Administration) Act 1992 (alongside the Fair Work Act 2009) to achieve a better overall outcome.
The choice of workers to seek a collective mechanism is, according to TWUSUPER, an effective and important exercise of choice, which arguably delivers superior outcomes to other models. Eliminating collective choice as this bill intends would, according to TWUSUPER, actually diminish choice overall, and leave many workers access to inferior and less informed models of choice.
TWUSUPER argued that this was the potential unintended consequence of the legislation:
I think there is a danger of unintended consequences if we fall into the trap of talking about this amendment as something that addresses the denial of choice. It is in fact precisely the opposite. Putting this amendment through denies workers an iteration of choice that currently exists. It's just that some people don't like that iteration of choice because it's a collective iteration of choice…
We're not saying there shouldn't exist a range of different types of choice in superannuation; we're simply saying don't deny the collective aspect of choice.
When you remove the right of workers to collect as an exercised choice, in the way that they are currently permitted to do, you remove and you start to unpick the very collective nature of superannuation being treated as an industrial right.
Finally, TWUSUPER argued that the bill also does nothing to improve the situation for those not able to access superannuation at all, and consideration of the bill would be best deferred until after the Retirement Incomes Review has concluded.
UniSuper was one of the few submissions that make specific reference to the defined benefit aspect of the bill. They believed that one of the great strengths of a multi-employer defined benefit scheme is that employees and employers in the relevant sector have consistent superannuation arrangements across the sector and upon changing employment. They argued the bill would put these arrangements at risk and strongly suggested reconsidering the bill's application to defined benefit schemes.
UniSuper argued that should the bill be adopted in its present form, its members would be exposed to elevated risks, risks which are avoidable while retaining the legislation’s underlying objective to provide choice to individuals. UniSuper strongly suggest that the Committee recommend that:
the current exemption from the choice of fund requirements for existing defined benefit members should continue; and
an exemption for those who are newly eligible to become defined benefit members should also be provided for in the legislation.
In its appearance at the public hearing, UniSuper further explained its concerns:
A change in the total number of DBD [Defined Benefit Division] members by the number of new DBD members or even a lack of new members would not concern us. What does concern us is the potential material increase in what's called selection risk. We do think that what is proposed in this bill likely would introduce much higher risk. Selection risk, particularly in relation to the salary growth profile of new members and the skewing of the average age of new DBD members, would likely increase if permanent higher education sector employees were not automatically enrolled in the DBD and instead new members were just given the ability to opt into the DBD. As UniSuper has neither a government guarantee nor an employer guarantee to cover funding shortfalls, adverse outcomes from changes to experience will ultimately be borne by fund members.
If as a result of adverse selection the actuarially determined average cost interventions to the DBD became greater than the 21 per cent of salary amounts contributed to the DBD, it is likely that the DBD would need to be closed to new employees to ensure that the financial security of existing DBD members would not be compromised. This would lead to a loss of a very good superannuation choice as a unique offering by the higher education sector. It's salient to note that the contributions to many Commonwealth, state and territory defined benefit schemes are exempted from the choice fund requirements by the SG [Super Guarantee] regulations.
UniSuper have provided draft amendments to the Superannuation Guarantee (Administration) Act 1992 that UniSuper believe would, if adopted, address these concerns.
National Tertiary Education Union (NTEU)
National Tertiary Education Union (NTEU) does not believe the bill is necessary to protect its members. Furthermore, the bill may, due to the unique nature of both the higher education industry and the current industry-wide superannuation arrangements, potentially result in reduced choice and higher costs for its members and their employers.
consideration of the proposed legislation should be deferred until the completion of the current inquiry into retirement incomes;
that enterprise agreements or other industrial instruments that provide for payment of employers at greater than the superannuation guarantee contribution rate be exempt from the legislation; and
failing the above, the unique character of the higher education industry, fund, and products requires UniSuper to be explicitly excluded from this Bill (by the addition of the following words at 32C (1):
if the employee is an employee of a university.
Finally, the NTEU supported the proposed Australian Labor Party's amendment which would provide for the Fair Work Commission to apply a test as to whether the specification of a fund in an industrial instrument is in the best interests of the employees.
As the title suggests, the issue of choice is at the bill's heart. That individual workers in some industries are required to belong to one particular fund as part of their employment limiting their options not only in terms of choice but also in terms of avoiding holding multiple funds is not, in the committee's view, a desirous outcome.
The argument ventured by TWUSUPER regarding collective choice is not a strong one. While it carries a certain logic, it is difficult to argue that an individual being denied their own choice of super fund in the name of an overall collective workplace agreement qualifies as choice. In any case, it is not consistent with the bill's intent.
The committee agrees with ACCI on the question of what constitutes 'choice':
Choice is either choice of an individual—if you're not having the right to choose and you're putting it in the hands of someone else, we don’t see how that is choice. We note that, in preparing for this hearing we were looking at some perspectives of others, and even the Australia Institute pointed out in a report they did in 2008 that, from a psychological perspective, choice has been shown to enhance people's sense of self-determination and motivation. We really fail to see how that's an outcome where there is somehow this term 'collective choice'—when that involves no self-determination and no motivation on behalf of the individual.
The committee notes the evidence provided by FSC demonstrating the bill does not stop employees in a union collaborating together to make a collective choice:
There's nothing in this legislation that prevents that. All this legislation prevents is there then being a clause that says that no-one can move outside of that other fund. So there's nothing in this legislation that prevents employees, either separately or as part of a union, banding together and making a choice as to the default fund for their workplace.
Moreover, when asked, the ACTU also acknowledged that under this bill, a workplace and a union can, in an enterprise agreement, agree on a default fund and have workplace-tailored insurance:
ACTING CHAIR: Okay. I'll finish on this point. If this bill passes, can you still have a default fund in an enterprise agreement?
Mr Mitchell: Yes.
ACTING CHAIR: And can you still have workplace-tailored insurance?
Mr Mitchell: Yes.
The committee supports the bill's focus on individual choice and notes that even the bill's critics acknowledge that enterprise agreements can still have default funds for their workers. Accordingly, the committee recommends the bill should be passed.
Defined benefit funds
The committee notes the existing exemptions in the bill for defined benefit funds. A number of submitters have argued that there should be further exemptions.
UniSuper is one of those funds. UniSuper provided evidence through the hearing and two submissions and their arguments were put to Treasury. Treasury argued that the bill would not change UniSuper's default arrangements – employees would still be defaulted into the defined benefit.
UniSuper, as they outlined, currently have a two-year window in which employees can choose to opt out. Because they are defaulted into their defined benefits arrangements, they can choose to opt out within that two-year period. On the evidence presented by UniSuper, currently somewhere between 15 and 20 per cent of people are choosing to opt out in that period... So what this bill will do is ensure that, beyond that two-year period, the employees can also choose another fund other than the defined benefit fund.
Treasury had also been in consultation with UniSuper and are of the view that the bill will not cause any concerns:
We've been in discussions with UniSuper, have seen their submissions and have also spoken with them. We are yet to receive any detail from them that would suggest there is an issue with proceeding with this legislation.
The committee understands – particularly now – the attraction of a defined benefit scheme; a scheme which is essentially unaffected by the vicissitudes of financial markets. The evidence provided by Treasury indicates that these schemes should remain unaffected by this bill.
However, changes may emerge over time and the committee believes that it would be prudent to review the status of defined benefit schemes after a two-year period to ascertain if there have been some unintended negative consequences.
The committee recommends that a review is conducted into the effect of this legislation on defined benefit schemes two years after its implementation.
The Committee acknowledges that the findings and recommendations of the Treasury's Retirement Incomes Review could also be a significant opportunity to further improve the superannuation system.
The Committee also notes the positive suggestions by many submitters to this inquiry. These would need further consideration and consultation before being incorporated into future reform.
In that regard, the committee is of the view that any well-considered amendments which provide greater transparency, streamlines the decision making process, helps funds improve performance and ultimately, enables workers to make more informed choices about superannuation funds should be considered in the future.
The committee recommends the government considers changes as suggested by submitters to further improve superannuation arrangements.
The committee recommends that the bill be passed.
Senator Slade Brockman