Sunday March 21, 2021 No images? Click here EDITORIALAward super reform by another nameAt first glance Your Future, Your Super appears very strange policy design from a conservative coalition government, which leads me to ponder whether reform of the award super process itself is the longer game at play. There is a plethora of critiques of the YFYS reform package. If anything, we think the true level of concern is understated as groups take a tactical position to work to constructively modify rather than oppose the reforms, given the overall intention of improving consumer outcomes. The primary focus of The Conexus Institute has been on the performance test: here our research shows that the opportunity cost of investment strategy constraints induced by the performance test will far exceed the projected benefits of the entire YFYS reform package. Removing unintended multiple accounts through stapling appears a no-brainer for improving consumer outcomes. It is a safeguard which disengaged consumers deserve. Industry failed to grasp the chance to proactively develop their own stapling solution. The devil is always in the detail as there are many possible stapling models. The Government’s Single Default Account model pre-ordains winners (the first-employment funds) and risks reducing the degree of appropriate insurance arrangements as people change occupation. But when it comes to competition in default superannuation, it is hard to see what will motivate effective competition in the provision of quality default super offerings, or the “exemplar” as coined by the Productivity Commission (PC). Rationally, the Government’s model incentivises first employment funds to ensure they don’t fail the performance test and to prioritise member retention strategies. What are the competition incentives for other super funds? Competition is likely to be directed through consumers, who are often disengaged and find it difficult to recognise the value of complex product features. The PC recognised these issues which motivated its 'best in show' model. The PC understood the need for competition but had concerns about effective consumer-based competition. As such it proposed an institutional framework to promote strong competition amongst default superannuation providers. No pre-ordained winners accompanied with ongoing opportunities for efficiency and successful innovation to be rewarded. The PC’s numbers suggested that ‘best in show’ was more beneficial to consumers than the performance test. It is clear from the PC’s report that a stapling model would only deliver its full potential if complemented by ‘best in show’. There was always a question mark over whether the 'best in show' idea could work in practice. So how did Government end up with the proposed stapling model? Only two explanations make any sense. One is questionable policy design, where bits and pieces have been cherry-picked out of the PC’s integrated suite of policy recommendations without an understanding of the impact. The other is that Government has taken a 'horse before the cart' approach, whereby it has intentions to have another go at reforming the award super process. Let’s hope that whatever occurs, it is done with the best interests of consumers at heart. Colin Tate, founding chair, The Conexus Institute TOP STORIES THIS WEEK |