10 April 2016
by Joanna Mather
Super industry 'preys on financial illiteracy': former ACCC boss
The former head of the competition regulator has accused superannuation funds of encouraging complexity and stifling competition to keep fees lucratively high.
Graeme Samuel likened super to the private health insurance industry, "shrouded in obfuscation and obscurity".
Players in both industries preyed on financial illiteracy to prop up their business models, the former Australian Competition and Consumer Commission chairman told The Australian Financial Review's Banking & Wealth Summit.
"Layer upon layer of regulation has led to enormous complexity," a visibly annoyed Mr Samuel said.
"And no-one in the industry sees any reason at all to try and remove that complexity."
Mr Samuel was responding to comments by BT Financial's superannuation general manager, Melinda Howes, who told the summit there was already significant competition within the sector.
There is a widely held view that super fees are too high and more competition is the solution.
That feeds into a simmering row over whether for-profit super funds owned by banks should be better able to compete with industry-aligned funds for a slice of the default sector.
Warren Chant, who heads super consultancy firm Chant West, turned up the heat when he told the summit he "couldn't disagree more" with Mr Samuel.
"To say there is not enough competition because consumers aren't engaged, we just don't accept that," Mr Chant said.
Divide between default funds and bank-owned funds
The comments also feed into a simmering row over whether super funds owned by banks should be better able to compete with industry-aligned funds for a slice of the default sector.
Eighty per cent of employees opt for whichever default super provider their employer nominates.
Historical and industrial factors mean industry super funds get the lion's share of this default money.
The theory is that more competition for default provider status will result in better products and lower fees.
At present, default funds are chosen by the Fair Work Commission.
But critics believe the commission is stacked by the Left and is therefore inclined to select industry funds as default providers.
The federal government has asked the Productivity Commission to look at a competitive tender process.
It has also introduced legislation that will make it unlawful for enterprise agreements to mandate employees use a particular super provider.
Ms Howes said industry super funds had been the beneficiaries of a "protectionist policy" that guaranteed they received the lion's share of default money.
The previous Labor government introduced MySuper, which established benchmarks for funds seeking to offer default products.
For-profit funds want any approved MySuper product to be able to be nominated by an employer as the default.
Worries about financial institutions' marketing tactics
Industry funds say they are worried financial institutions will offer employers inducements to take up bundled banking and super products even if they are not the best products for employees.
"The idea of unfettered competition, that any MySuper can be the default, is flawed because it assumes MySuper is a quality mark, which is it is not," Scott Hartley, the chief executive of industry fund Sunsuper, told the summit.
"There are significant variations between MySuper products.
"It also presumes employers are well placed to make a decision on behalf of their employees and I don't think that's a safe assumption."
Mr Samuel is leading a review of private health insurance for the federal government.
Outside the summit he said the super industry, like private health insurers, "preyed on financial illiteracy".