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ACA is concerned about aspects of legislation allowing employees to choose superannuation funds.

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Monday 22 June 2004

ACA is concerned about aspects of legislation allowing employees to choose superannuation funds


HAMISH ROBERTSON: Eight years after it was first proposed, the Government has finally won support for legislation giving employees, rather than employers, the right to choose the fund where their basic superannuation payments go. 


The Australian Democrats are backing so-called "choice in super", in return for more disclosure of fees and charges. 


The big banks and insurers say the new laws will push down fees and improve returns by encouraging competition, but consumer advocates are highly critical of the planned legislation. 


Our Finance Correspondent Stephen Long now reports. 


STEPHEN LONG: New legislation set to pass the Senate will allow workers rather than bosses to decide where their basic superannuation money goes, and John Howard says that is all about choice and freedom.  


JOHN HOWARD: Freedom of choice is something that the Government is fundamentally committed to. It adds an important dimension of choice. 


STEPHEN LONG: The big banks and insurance companies who sell private profit-making super schemes are echoing the Prime Minister's other key argument for the choice in super law - that it will give employees more money to live on in retirement by encouraging healthy competition. 


Craig Dunn from AMP, one of the biggest private sector super providers. 


CRAIG DUNN: Well I think you are going to see more competition. I think, you know, consumers can now vote with their feet and that means all superannuation providers - AMP, Retail Fund and industry funds - are going to make sure that they have to have, you know, they are going to have to have very competitive offering to be successful going forward. So I think you are going to see more competition and that's going to be better for Australians.  


STEPHEN LONG: But consumer advocates are highly sceptical about the argument that competition for workers' super money will push down fees and charges. 


John Berrill is a Melbourne lawyer and a member of the Financial Industry Complaints Tribunal. He's dealt with a litany of cases where financial planners shift people out of low-cost not-for-profit super schemes into expensive private funds run by banks and insurers in return for fat commissions, overseas trips and other inducements. 


He says allowing employees to choose where their super goes will only make this problem worse. 


JOHN BERRILL: At the moment, with award superannuation a majority of employees are in low cost, no cost, not for profit industry funds, the Bernie Fraser funds if you like. They are very large, they are competitively priced and they've consistently had above average returns, and the opening up of superannuation with choice is seen by banks and life offices and master trusts as a big opportunity to get into the market and to churn people out of existing superannuation funds. 


However, many such funds are sold through commissioned agents and they have to return a profit to their shareholders. So there is a significant difference between them and existing industry funds.  


STEPHEN LONG: In fact for years, independent surveys have shown the not for profit industry super funds are outperforming the private funds run for profit, and the not for profits also tend to have far lower fees and charges. 


Yet a series of studies by the corporate watchdog, ASIC, show that financial planners rarely ever tell people they should put their money in the not for profits and they routinely encourage people to invest in expensive super schemes that charge high fees and pay financial planners high commissions. 


Catherine Wolthuizen is Finance Policy Officer at the Australian Consumers Association. She says it's naive to think greater competition for workers' super will lower cost. 


CATHERINE WOLTHUIZEN: Well we know choice in superannuation comes with enormous risks to consumers - that they'll be vulnerable to being preyed upon by financial planners and others in the financial service industry who've got a vested interest in taking them out of reasonably affordable, reasonably performing not for profit funds, and transferring them into for profit funds that of course come with higher fees and charges but not necessarily the better performance to match that additional cost. 


HAMISH ROBERTSON: Catherine Wolthuizen.