This Productivity Commission inquiry report was released on 12 October 2012. Default superannuation arrangements for those employees who derive their default superannuation product in accordance with modern awards have provided market stability, and net returns of default funds have generally exceeded those of non-default funds. However, the arrangements could be improved. The primary principle governing default superannuation arrangements for modern awards should be the promotion of the best interests of employees. The selection of default products for awards should be merit rather than precedent based, and should encourage improved performance through competition. The criteria that the Australian Prudential Regulation Authority will use for MySuper product authorisation provide a first filter for the selection of products. The Commission recommends a set of non-prescriptive factors to be considered as a second stage 'quality filter' when selecting default products for modern awards. The factors relate to: investment objectives and performance (as primary factors); fees and costs; governance practices (particularly mechanisms in place to deal with conflicts of interest); insurance; intra-fund advice; and administrative efficiency. The process for the selection and ongoing assessment of default products in modern awards should be reformed. Decisions on the listing of default products should be made by a new Default Superannuation Panel within Fair Work Australia (FWA).
