Ross Greenwood speaks to Industry Super Australia CEO, David Whiteley, who is disputing a call for major reforms in the superannuation industry after a draft Productivity Commission report. Mr Whiteley says the proposed reforms would place choice in the hands of young people who aren’t close to thinking about their retirement.
Introduction: Is the current superannuation scheme working? Industry fund boss think so
Ross Greenwood: Let’s go to the Productivity Commission report today. This report has come out and recommended, effectively in its draft report that, the government seeks ways to see more superannuation funds merge to try and get bigger superannuation funds that are more efficient and that have lower fees. It’s also recommending that younger people should be able to have more choice of superannuation funds as distinct from having default superannuation funds chosen for them by their employers, and on top of that, that maybe there is a menu of choices that are effectively chosen for them from a best-of-breed.
In other words, you are only given choices of the very best superannuation funds. Others, presumably, will be left to wither on the vine. It does also, again, highlight the fact that not-for-profit superfunds, such as industry superfunds, have outperformed those from banks and big life insurance companies. The chief executive of Industry Super Australia, David Whiteley, is on the line. Many thanks for your time, David.
Interview with: David Whiteley, CEO, Industry Super Australia
David Whiteley: Good evening, Ralph. How are you?
Ross Greenwood: Notwithstanding all of that from the Productivity Commission, are you happy with this report?
David Whiteley: Look. It’s an interesting report, but what we see is the disconnect between the empirical evidence that they presented and the recommendations that they’ve made. As you said, the empirical evidence shows the default system is working better than where people choose their own fund, and it’s showing that, within the default system, the not-for-profit industry superfunds and other not-for-profit funds are delivering better returns.
Ross Greenwood: Okay. I’ll take you up on that, because surely, if I’ve got default funds — If I have not one but ten, and all of those are of a reasonable standard, so it doesn’t matter which one I pick, really, to a certain extent, surely that is a better situation than having our current situation, where my employer effectively chooses it for me, and for the wrong purposes, I might pick the wrong fund.
David Whiteley: Well, sure. The design of the current system, in the way that it’s supposed to work, is that an expert panel chooses, “This is the current system.” Then an expert panel chooses up to 10 and 15 funds, and also, as an employer, chooses what they think is the best fund for their employees. That’s how the system should work. It’s supposed to be seen by the Fair Work Commission.
Ross Greenwood: Okay, but you and I both know that it doesn’t work that way, because there have been certain circumstances. I’m conscious of this. You have heard of these stories as well, where the employer picks the fund, which actually might, in some cases, give them a cheaper interest rate on their overall business lending. That’s not the first time that that might have been brought up in our community in the past.
David Whiteley: Now, that’s absolutely the case, and it’s against the law, and there should be strong laws to prevent that from happening, but what the Productivity Commission is proposing is that the younger workers, when they’re starting in their jobs, and this could include teenagers — 16, 17-year-olds should be expected to make decisions about their retirement. I don’t think you could find a cohort of a working population less interested in retirement, less engaged, and less informed about retirement than teenagers just starting their working careers.
Ross Greenwood: I get that, but if they simply make a fund, and the choices in front of them have all been vetted, and they’re all okay, and they are not put into, let’s call it, a low-performing fund, surely, that’s a better outcome than what you’ve got now, where they might ultimately be guided towards a low-performing fund if the system’s not working properly. That’s what I’m trying to get at, and if so, for example, the industry superfunds are among the best performing out there, and the larger of those industry superfunds are at the top of the tree; surely, a lot of the money would be guided towards those types of funds.
David Whiteley: Well, sure. There’s absolutely no doubt that should there be a list of the fund that’s either going to be exclusively or predominantly made up of industry superfunds, rather not private funds. There’s no doubt about that.
In that regard, Atkinson is making sure what is in the best interest of members. Now, the way the system should work and could work is that you have a short list of funds, and the employer then selects one of those funds, but by asking employees to choose, there is a risk that you’ve got teenagers making decisions about their own retirement. It’s unprecedented; it’s experimental. It’s not a system that works anywhere else in the world whereas the system we have currently is one which is quite common across pension systems across the world.
Ross Greenwood: I’ll be fascinated to see which way they go. David Whiteley, the chief executive of Industry Super, and as I said a little earlier, we will have the deputy chair of the Productivity Commission, Karen Chester, on the program a little later on. David, many thanks for your time.
David Whiteley: Fantastic. Thank you. Cheers.
[00:04:41] [END OF AUDIO]
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