Reforms favour industry super funds

THE federal government's revamp of industrial awards is causing unexpected turmoil in the financial services sector as a result of significant changes to superannuation arrangements between employers and employees.

Funds, advisers and the business lobby believe the changes will cause significant upheaval for employers and are likely to alter the superannuation landscape, tipping the balance in favour of a select few industry funds.

The Australian Industrial Relations Commission, which is undertaking a process called award modernisation, has raised the issue by naming in its new industry awards the default superannuation funds for employees who don't name their own fund.

"It is a very big issue," WA Chamber of Commerce and Industry director of workplace relations policy Marcia Kuhne said.

"It is something that has been slipped into these awards."

Ms Kuhne warns there is potential for a big administrative burden to be placed unnecessarily on employers.

Under existing conditions, the employer names the default fund, creating a contestable market that generated competition between industry funds, retail funds and specialist corporate superannuation providers that operate in this space.

In many cases, employers have created their own master fund arrangements, which proponents claim have advantages in terms of insurance options.

These are likely to be unworkable if the majority of the workforce doesn't participate.

In its submission to the AIRC, AMP states that only 10 per cent of employees choose their own fund, and the rest accept the default option.

The selection of industry funds - some of which are seen as union-linked - is seen by many as anticompetitive and will backfire for employees by creating monopoly providers.

"This removes the incentive for the named default funds to lower costs and improve service and investment performance," AMP said in its submission.

There is also the issue of why these funds were chosen in the first place.

Ms Kuhne said the AIRC had released no reasons for its decision to choose the industry funds.

For employers with workforces across multiple awards, the naming of superannuation funds as a default will mean dealing with many more product providers rather than choosing their own.

"It is a very significant change to superannuation," AXIS Financial Group CEO Harry Burke said.

"Some of the product providers may find they're being closed out from participating with certain employers."

AXIS oversees about 60 corporate client funds with 10,000 employee members.

WA's biggest industry fund, Westscheme, recently warned the proposed changes to the superannuation elements of federal awards were likely to alter the sector's landscape.

Westscheme has been named as a default fund for one award, but that is a small slice of the industries it serves via its $2.5 billion fund, which has 25,000 employers contributing superannuation on behalf of one or more employees.

"A fund like Westscheme will have to think seriously about its operating model," chief executive Howard Rosario said.

"Funds will have to work harder to get new members because they will not be able to get it through being a default fund."

Subiaco-based WCG Corporate Super has done some detailed studies of the changes and believes it will reduce the contestable market from 5.4 million, or 50 per cent of Australia's employees, to 3.9 million.

WCG has 15,000 employees on its books through 60 corporate customers.

"It will be a diminished market, it will go down by 30 per cent," said WCG's Allan Rickerby.

While Mr Rickerby was unconcerned about the impact of the proposed awards on his own business he believed the changes were inequitably favouring industry funds.

"They [industry funds] will have so much legislated business," he said. "It is unfair."