Major financial players risk losing access to tens of billions in new super funds
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Major financial players risk losing access to tens of billions in new super funds

Superannuation funds managing up to $200 billion in Australian savings are almost certain to be left off a mooted best-in-show list, leaving some of the country's largest financial players including AMP, MLC and Colonial First facing a multi-billion dollar exodus.

The Morrison government has warmed to a key recommendation from the Productivity Commission to put new workers into just 10 high-performing super funds, leading retail and industry funds to lobbying furiously against the threat posed by the plan.

Labor is more resistant to the proposal, which could force some union-backed Industry Super funds forced to merge.

The commission has proposed the nation's top 10 funds would form a "best-in-show" group into which new workers would be defaulted for their no-frills superannuation account.

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An analysis of five and 10 years of superannuation results show some of the nation's biggest financial names would lose access to this group, which the commission believes represents 450,000 people and $1 billion in contributions per year.

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Among those potentially shut out include the $55 billion AMP's Super Savings Trust, the $72 billion Colonial First State FirstChoice Super Trust and the $24 billion Mercer Super Trust.

Members in these funds have consistently suffered returns a third less than those at the top of the ranks over the past decade.

Mercer and MLC were contacted for comment. A spokeswoman for AMP said it was misleading to compare the overall return of the AMP Superannuation Savings Trust against other funds, which are structured differently, as AMP members don’t invest directly into the fund but rather underlying products which have different features, benefits and costs.

"It’s too early to speculate on the outcomes of the Productivity Commission’s final report as the government has yet to formally respond to it," she said.

Colonial First State executive general manager Linda Elkins welcomed the report's emphasis on "improving member outcomes" and said Colonial backed increased competition in the default superannuation sector.

"Our fund provides choice to members and any comparison of performance has to be on a like-for-like basis."

Some very small funds from both the retail and industry sectors would also likely fail to make the new default list. These include the Victorian Independent Schools Fund, Lutheran Super and Christian Super, among the worst performers over the past five years.

Workers would still be able to chose these funds if they wished but they would no longer be defaulted into them by their employers when they start work, shutting off a key source of funding for many of the sector's players.

Industry and retail funds have criticised the criteria required for a super fund to enter the top 10 list as light on detail.

According to the comission's final report the panel that chooses the 10 performing funds for a four-year period would be appointed by the Reserve Bank governor, Australian Competition and Consumer Commission chair, the head of the Parliamentary Budget Office and a consumer representative.

The Productivity Commission listed a broad range of parameters to determine which funds make the best-in-show.

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Apart from past performance, it believes the panel should take into account a fund's value for money, its governance practices, its expected ability to deliver its stated returns, quality of its trustee board members, its record of innovation, the ability to take on new members and its standard of advice.

There are some concerns that governance practices could be used to "punish" industry funds which have boards made up of union and business representatives rather than "independent" trustees. Governance could be used to exclude from the best-in-show group a fund that delivers high returns.

The commission also proposed that the panel selecting the best-in-show list should "ensure a competitive dynamic" exists between funds to the point it may change the number of funds chosen "from time to time".

Shadow treasurer Chris Bowen re-stated his concerns over the proposal on Friday after Treasurer Josh Frydenberg said the plan "had merit".

"Those [top 10] funds would have a very big competitive advantage over other funds," Mr Bowen said, warning  there were inherent risks coming up with "the magical number 10".

"If there was a view that ‘hey we can have these top 10 best-in-show and then anybody else who is not in the top 10 is going to struggle', then who's going to provide the competition to try and get into the top 10 in the future?" he said.

Mr Bowen said he was willing to consider the comission's proposal to invalidate restrictions on tying specific super funds to awards in sectors such as construction, in comments that could rattle the union movement.

"I'm always happy to look at good ideas," he told 2GB radio. "I generally think people having more choice is a better thing."

Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.

Eryk Bagshaw is an economics correspondent for The Sydney Morning Herald and The Age.

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