Issue No 35 | 15 October 1999 | |
Trades HallSuperman on Choice of FundBy Mark Lennon
- Labour Council executive officer Since coming to power in 1996 the Coalition Government has had a policy of choice of superannuation fund for employees. At present most employees have their superannuation contributions paid into the fund nominated in their relevant award.
Their first attempt to implement this policy in 1997 did not receive the support of the cross benches in the Senate and as a consequence the legislation was withdrawn. Recently the Government has sought to reintroduce the legislation and at the present time is negotiating with the Democrats on the issue. At the outset it should be made clear that choice of fund is not something new. In NSW for instance, there has been a provision in the Industrial Relations Act allowing an employee to choose a fund other than those designated by their award since 1991. However under this provision the employee elects to make a choice rather than being forced to do so as under the Federal Governments proposal. More prevalent than choice of fund however has been investment choice within a fund. This involves funds offering members choice of investment strategies which have different risk return profiles. Generally funds offering this type of service will have three or four choices ranging from a high growth strategy to a more conservative capital secure. In its original form the Federal Governments proposal would have seen employers having to offer either an unlimited choice of funds or a limited choice of four funds. The limited offer had to include the employers fund, the relevant industry fund, a public offer fund and a retirement savings account. Both the unlimited and limited offers had to include a default fund should the employee not elect to make their own choice. The major concern about the proposal is whether employees will be able to make an informed choice. The likelihood is that members will be bombarded by the retail sector offering a smorgasbord of funds. The risk being that members will make a choice not fully understanding the implications for their retirement plans. This could have implications for the broader community because if the problem becomes widespread and individuals have made insufficient provision for their retirement it could undermine the national retirement incomes policy. The experience in the United Kingdom with choice serves as a warning. In the mid 80s employees in the UK were given the opportunity to opt out of their company schemes and move to personal pension plans. Many employees took up this option without understanding the consequences. They lost their employer contributions and other benefits and often incurred higher administration costs. Many individuals are now taking action against the providers of the plans for providing misleading advice. From the union movements perspective clearly there is a belief that industry funds have and will continue to deliver for members. Good returns, low administration costs and an increasing level of services, including investment choice, means that industry funds are the best value for members and therefore make the value of choice questionable. The Federal Governments proposal is based more on ideological grounds rather than sound policy. I hope the Democrats see it that way as well.
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