the Commission addresses whether its previous review findings into the efficiency of the system remain relevant. Super system is not uniform - segments must be examined to gauge efficiency and ensure consumer protection We welcome the wider view of competition throughout the Issues Paper, and especially the overview encapsulated in Figure 3 of the Issues Paper. While the review relates to the system as a whole, it is important to recognise that the superannuation industry is not uniform, but rather is characterised by distinct segments. The segmentation of the superannuation industry was considered and consulted upon by APRA in 2015. APRA found that segmentation illustrated below to be effective in that it improves understanding, investigation and importantly benchmarking of the industry. Figure 1 Source: APRA, Segmentation of superannuation entities, Issued 19 February 2015, p 2 The primary segmentation between for-profit and not-for-profit RSEs has proved particularly significant in APRA’s analysis in relation to the key metrics of net returns for members, the of conflicts of interest, and the inefficiencies in the use of related parties. The segmentation in Figure 3 of the Issues Paper should be enhanced to identify the segments which operate on a not-for-profit basis and a for-profit basis, and be informed by the existing evidence of inefficiencies within for-profit vertically integrated structures where principal-agent relationships have been found to not align with superannuation fund members’ best interests (this research will be described in detail in the relevant sections below). All segments must be taken into account when assessing inefficiencies AIST recommends that the Commission avoids accepting untested assumptions about the superannuation industry or accepting the narrative handed to it by preceding inquiries – especially the Financial System Inquiry and the Government’s response to it. We take special issue with the undue focus on the default system as a cause of inefficiencies, with the rationale of disengagement and limited pressure on fees. We argue that disengagement exists across the whole of superannuation – including those members in Choice options and SMSFs. Consumers in all segments of super system must be protected Current default system protects members The default system is a fundamental protection for superannuation consumers, designed in recognition of widespread member disengagement.
the Commission addresses whether its previous review findings into the efficiency of the system remain relevant. Super system is not uniform - segments must be examined to gauge efficiency and ensure consumer protection We welcome the wider view of competition throughout the Issues Paper, and especially the overview encapsulated in Figure 3 of the Issues Paper. While the review relates to the system as a whole, it is important to recognise that the superannuation industry is not uniform, but rather is characterised by distinct segments. The segmentation of the superannuation industry was considered and consulted upon by APRA in 2015. APRA found that segmentation illustrated below to be effective in that it improves understanding, investigation and importantly benchmarking of the industry. Figure 1 Source: APRA, Segmentation of superannuation entities, Issued 19 February 2015, p 2 The primary segmentation between for-profit and not-for-profit RSEs has proved particularly significant in APRA’s analysis in relation to the key metrics of net returns for members, the of conflicts of interest, and the inefficiencies in the use of related parties. The segmentation in Figure 3 of the Issues Paper should be enhanced to identify the segments which operate on a not-for-profit basis and a for-profit basis, and be informed by the existing evidence of inefficiencies within for-profit vertically integrated structures where principal-agent relationships have been found to not align with superannuation fund members’ best interests (this research will be described in detail in the relevant sections below). All segments must be taken into account when assessing inefficiencies AIST recommends that the Commission avoids accepting untested assumptions about the superannuation industry or accepting the narrative handed to it by preceding inquiries – especially the Financial System Inquiry and the Government’s response to it. We take special issue with the undue focus on the default system as a cause of inefficiencies, with the rationale of disengagement and limited pressure on fees. We argue that disengagement exists across the whole of superannuation – including those members in Choice options and SMSFs. Consumers in all segments of super system must be protected Current default system protects members The default system is a fundamental protection for superannuation consumers, designed in recognition of widespread member disengagement.
sub030-superannuation-competitiveness-efficiency.docx