Why Labor must not cave in to super industry scare campaign
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Why Labor must not cave in to super industry scare campaign

Australia's alternative treasurer, Chris Bowen, has so far stood firm in the face of an increasingly hysterical scare campaign against Labor's proposal, if elected, to crack down on excessive housing tax breaks.

It’s time for Bowen – and his Labor colleagues – to muster whatever mettle they have left, and join the Coalition in staring down a brewing scare campaign being waged by the superannuation industry – both industry and retail funds – against this week's landmark report by the Productivity Commission into how best to protect Australia’s $2.8 trillion super nest egg.

Put simply: Australia's super system is a mess, bedevilled by multiple accounts, unnecessary insurance products and a proliferation of poor performing funds which have drained Aussie retirement savings for decades.

As one step towards fixing things, the commission has recommended a Top 10 “best-in-show” list of super funds be compiled by a panel of experts and put in front of Australians entering the workforce to choose which one to put their money in.

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Without announcing a final position, Bowen has flagged his concerns that such a top 10 could, firstly, get it wrong – identifying only temporary good performers – and, secondly, excessively curb competition by prompting funds outside the top 10 to close.

It's true that the super industry is set for a massive wave of consolidation if the commission's bold recommendations are implemented.

Many funds will disappear.

But number alone is no guarantee of healthy competition.

Indeed, the commission's analysis has found members could reap significant "economies of scale" savings – particularly in administration costs – if smaller, underperforming funds were forced to merge or close.

Because super accounts are government-mandated products, governments have a special responsibility to play an active role to ensure the money they have forcibly removed from pay packets is being well invested.

It's a role that successive governments – and their appointed regulators – have comprehensively failed to perform. Regulators have for some time had the power to apply a "scale test" to force small, dud funds to close. But they have failed to use it.

For too long, dud funds have hidden behind the excuse that “past performance is no indicator of future performance”.

As a result, Aussie savers have been bamboozled into a position of complete powerlessness, unable to make the call on which funds are better or worse performers. A lack of good data has hindered their efforts.

But through its gruelling year-and-a-half inquiry, the Productivity Commission has interrogated the figures and ferreted out the poor performers.

It knows exactly which funds they are, but has explicitly declined to identify them in its reports, for fear of causing a run on those funds, to the detriment of other unwitting members.

Instead of forced closures, or a messy "name and shame" process, the commission's "best in show" model is designed to knock these players out by default.

Compiling the top 10 list will, indeed, require a panel of truly independent experts, and better data than now available.

But the potential benefits of shifting money out of persistently poor performing funds are large indeed.

Some countries have just one low-cost pension fund, overseen by government.

A top 10 list is a good half-way house, allowing some competition, but also protecting Aussie savers from being placed in dud funds.

The irony is that, based on past performance data, that top 10 will be dominated by the large industry funds that are so closely linked to the Labor movement.

The best funds should have nothing to fear.

Jessica Irvine is a senior economics writer with The Sydney Morning Herald.

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