Response to superannuation: assessing efficiency and competitiveness: productivity commission draft report

The Draft Report provides a comprehensive diagnosis, and its proposals offer a significant improvement on current arrangements, particularly the elevated standards for MySuper products. The report proposes to change the default process based on a provided top-ten MySuper list. Workers can choose from the list or from outside the list. Workers who make no choice are allocated to a fund in the list on a ‘cab-rank’ basis. Workers changing employers without declaring a new provider would stay in their existing fund, whether it was a previous choice or resulted from a default. The top-ten default design would be superior to current practice, but would be riskier for and less supportive of workers than a single default, run by a government agency. This submission sets out two strategic reservations about the analysis in the Draft Report: that it focusses mainly on a snapshot of the default proposal, with less attention to how the system might evolve over time, and that it takes insufficient account of the nature of market equilibrium with frictions and incomplete engagement. We therefore stand by the recommendation in our earlier submission of a single government-organised default and, to that end, summarise different ways in which that design can be implemented. We note that individual choice could be influenced by a provided top-ten list without its being used for a default.