CHAPTER 13
SUMMARY
13.1 Much of the evidence to the Committee supported the introduction
of choice of fund, or at least accepted the policy direction set by the
Government. However, there is a deep division between specialist providers
of financial products who are anxious that choice proceed in accordance
with the Government's announced schedule, and others who, for a variety
of reasons, advocate a delay or propose that choice be optional for a
limited period, or that choice be limited to investment within a fund.
The former group, which includes the banks, some specialist product providers
and some of the major life companies, have products ready for the introduction
of choice and are confident that they can prepare key features statements
for their products before 1 July 1998.
The latter group, which includes the Association of Superannuation Funds
of Australia, consumer and legal advocates, some major employers, small
employers and many of the major consulting groups, do not consider that
employees or employers will be sufficiently educated about choice. Concern
was also expressed about the tasks that trustees and employers must complete
prior to the starting date. Further, this group wishes to see the final
form of the legislation, including the regulations that will govern key
features statements, before proceeding. At the time of writing, this information
is not to hand.
13.2 In order for the choice of fund initiative to achieve its objectives,
employers and employees will both require education about choice of fund.
Employers, particularly small employers, will need to be advised about
their obligations, responsibilities and options. Employees will require
information about their rights and how to make a sensible choice. Many
witnesses expressed concern about the cost of a choice regime to both
superannuation providers (in terms of high marketing and commission costs)
and to employers.
13.3 It is important that choice of fund works primarily for the benefit
of employees rather than providers or employers.
13.4 Educational material associated with key features statements should
discourage people from exercising choice of fund until they have adequately
informed themselves of the consequences of changing funds, and understand
what is being offered to them.
13.5 If employee choice proceeds, key features statements should incorporate
clear warnings about the consequences of choosing a fund, such as the
adequacy and coverage of insurance and the possibility that insurance
cover, where formerly provided, may lapse. The statements should also
incorporate a clear explanation about the relative risks associated with
each option.
13.6 The default fund must provide adequate protection for those people
who cannot or are unwilling to exercise choice. Several witnesses recommended
that the employer should not choose the default fund, and that the relevant
industry fund should be the default fund.
13.7 In circumstances where there is a dispute between the employer and
the employee in matters relating to choice of fund, there is a need for
a nominated arbitrator. Some witnesses considered that the Superannuation
Complaints Tribunal was the most effective vehicle for this task, although
numerous witnesses, including a number of trade unions, argued that the
Australian Industrial Relations Commission had better expertise to deal
with such disputes. However, a recent Federal Court decision has removed
the Superannuation Complaints Tribunal's powers to arbitrate on disputes.
The Government is working with interested parties to find a low cost dispute
resolution mechanism. The Committee also intends to conduct a round table
group discussion to discuss this matter.
13.8 The choice regime would represent very significant change to administrative
arrangements for superannuation. If it is to proceed as planned on 1 July
1998, early passage of the legislation and completion of the regulations
on matters such as disclosure will be necessary to provide legislative
certainty. However, a large number of witnesses expressed the view that
a delay of at least a year would be prudent.
13.9 There is considerable evidence that people will perceive key features
statements as very complex. Given the limited amount of time for employees
to be adequately informed, there is a great deal of anxiety about potential
responsibilities and liabilities. However, the Assistant Treasurer, Senator
the Hon. Rod Kemp, and officers of the Australian Taxation Office, have
assured the Committee that the necessary information will be available
for new employees before choice is introduced. The Minister and the officers
expressed confidence that sufficient time remains for the necessary arrangements
to be put in place.
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