Business

Coles and Woolworths face tough call on super changes

Supermarket giants Coles and Woolworths will be two of the largest employers to be affected if new laws allow all individuals to choose their own superannuation fund. 

In December, the Turnbull government released draft laws designed to give more employees the freedom to choose a fund rather than have it mandated in a union-brokered enterprise agreement.

Roughly 200,000 employees of Coles- and Woolworths-owned supermarkets are about 10 per cent of the approximately 2 million Australians to be affected by the reform. 

The changes will require an overhaul of the way the country's two biggest retailers nominate "default" super providers for their employees and administer their payments. 

Industry funds, which dominate the $9 billion default super market, have broadly opposed the change, while the mostly bank-owned retail funds keen to grow their share of this market have welcomed it. 

"If a consumer doesn't like their super fund they should be able to switch," Financial Services Council chief executive Sally Loane said. 

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"Locking 2 million people out of the right to chose their own provider for such an important financial product is an anomaly in an open economy."

Supporters of the status quo argue that restricting choice of fund can benefit affected fund members by guaranteeing economies of scale that enable employers and industry funds to negotiate bulk discounts on insurance and other costs.

Below-average performance 

Ms Loane said this argument was undermined by the below-average performance of many of the industry funds named in the relevant enterprise agreements. 

According to Australian Prudential Regulation Authority data the five top default products since the commencement of the MySuper regime seven quarters ago have generated an average return of 14.8 per cent. The average MySuper product returned 10.8 per cent over the same period.

By comparison, the three industry super funds that cover much of the operations of Coles and Woolworths were in the bottom half of all standard MySuper products. Over those seven quarters, REST Industry Super returned 10.4 per cent, MIESF 9.9 per cent, and TWU Super 9.2 per cent. 

Industry Super chief executive David Whiteley has argued that the reform should not be a priority because only about 20 per cent of people in the broader population who have the ability to choose their own fund do so. 

The Royal Commission into Trade Union Corruption last month backed the government's push for choice of fund. 

"In short, none of the arguments made against freedom of choice are compelling," commissioner Dyson Heydon said. 

In a submission to the royal commission, REST chairman Ken Marshman argued that allowing all workers to choose their superannuation fund could be costly to business and could even land employers in court for giving poor financial advice

Coles and Woolworths are represented on the REST board; both declined to comment. 

It was also a recommendation of the 2014 financial system inquiry, led by former Commonwealth Bank boss David Murray, who called the current prohibition of choice "scandalous".  

The government is also pushing to mandate that industry super funds, which typically have equal representation of employer groups and unions on their boards, appoint a minimum of one-third independent directors and an independent chair. 

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