THE implementation of superannuation choice is “deeply flawed” and will ultimately leave employees worse off when they retire as a result of higher fees eating into employees’ super accounts, the ACTU recently claimed
THE implementation of superannuation choice is “deeply flawed” and will ultimately leave employees worse off when they retire as a result of higher fees eating into employees’ super accounts, the ACTU recently claimed.
The Federal Government should prohibit commissions on super guarantee contributions, the ACTU said, which would remove the incentive for unscrupulous financial planners and ensure super fund members know how and what they are paying for.
“The ACTU is worried that when the new superannuation choice laws take effect from after 1 July unscrupulous financial planners will move their clients super from one fund to another – in processes known as mis-selling and churning to gain more commissions and fees,” said ACTU secretary Greg Combet.
He said there were a number of super choice problems that needed fixing, including inducements for employers.
“In effect the choice legislation will be choice for employers not employees, with banks and financial planners able to offer employers inducements such as payroll or advice services to make their fund the default fund for employees,” he said.
“Also, employers may be offered reduced interest on their business loans or better credit arrangements and APRA will have difficulty regulating these practices even though offering such inducements is not lawful.”
Combet also said a lack of knowledge among many workers will prevent people from making an informed choice, and predicted the current education campaign would take ten years to get through to most people.
“Many will be driven by what the default fund is at their workplace or perhaps rely on advice from their financial planner or accountant whose advice may then be driven by which fund pays the highest commission,” he said.
A recent MLC survey found that almost one in five employees currently in an employer-sponsored fund are planning to switch funds under super choice. However, most employees weren’t planning on switching immediately and didn’t have a firm idea of which fund they would switch to.
The survey of 1,064 employees and 341 employers found that most workers would stay with their employer funds and continue to benefit from subsidised fees, comprehensive insurance and a wide range of investment options.
The Australian Chamber of Commerce and Industry (ACC) expressed concern over the inclusion of superannuation regulation in industrial awards once choice of fund commences.
“The dual regulation of superannuation through general legislation and the industrial award system has added unhelpful complexity to employer obligations,” said Peter Hendy, chief executive of the ACCI.
“With Parliament having legislated for employee choice under superannuation laws, then it is illogical and confusing for the same Parliament to allow industrial awards made under its laws to prevent employee superannuation choice.”
In addition to calling for the removal of superannuation from award regulation, Hendy called for the administrative obligations on employers to be minimised during the implementation of superannuation choice.
Industrial relations arrangements will determine if employees are in exclusion categories. Superannuation choice is employee choice, not employer choice,” Hendy said.
“Employers need to guard against giving financial advice to employees, even if requested to do so.” He encouraged employers to obtain guidance from their employer and industry organisations.
Next edition: The four steps for getting super choice right
