The efficiency and competitiveness of Australia’s superannuation system will be under the microscope following an inquiry announced by the Federal Government. Representing only the first stage of a more thorough review still to come, the announcement represents the Government’s implementation of recommendation 10 of the Financial System Inquiry on which we have previously reported.
The Productivity Commission’s terms of reference task it with undertaking extensive public consultation to:
- By November 2016: Develop criteria to assess the efficiency of the superannuation system. The criteria will then be used to assess the superannuation system ahead of the full implementation of MySuper. This next inquiry will occur after 1 July 2017.
In developing the criteria, the Commission is to have regard to operational efficiency, allocative efficiency and dynamic efficiency of the superannuation system. The Commission will also consider the nature of competition in the superannuation industry, and the effect of government policy on the competitiveness and efficiency of the system.
- By August 2017: Examine alternative models for a formal competitive process for allocating default fund members to products. This will include developing models that could be implemented by Government if a new model for allocating default fund members to products is desirable.
In developing alternative models, the Commission is to consider international practice, costs and benefits of different mechanisms, the robustness of the process, efficiency and innovation over the long run, the effect on system stability and market concentration, who should run the process, the extent to which the process promotes the interests of consumers and regulatory impediments to optimal competition.
While perennial reviews and changes to Australia’s superannuation system are not new, the Government’s announcement and the findings of the Financial System Inquiry, provides a powerful armoury for future legislative change.
Given 2016 is an election year, it remains to be seen whether the timelines set out for the Productivity Commission can realistically be achieved. If previous reforms are any indication, this inquiry will have a long gestation period.