The Productivity Commission's report on the default superannuation funds in modern awards does not consider the criteria set by the MySuper regime enough for a super fund to be selected in awards.
Instead, the commission gave nine factors that will serve as a roadmap to how an expert panel - whether within Fair Work Australia or an independent body - should select a default fund.
The most important factors focus on appropriateness of the risk and return objectives of the fund for the employees, but they also include the assessment of fees and even the quality of intra-fund advice.
Productivity Commission deputy chairman Mike Woods said these factors are necessary because the Australian Prudential Regulation Authority (APRA) requirements focus predominantly on disclosure and not appropriateness.
"The process that APRA goes through is an approval and disclosure regime," Woods told InvestorDaily.
"It means that, provided that the funds disclose all of those issue, they can get approved as a MySuper product, but it doesn't tell you which funds are performing better or which funds are better suited to your employees. It just asks: have you disclosed this?"
Woods also said the factors were put in place to restrict the number of MySuper products that employers need to choose from.
"What we are suggesting is a range of quality type filters to apply over and above of what APRA has to go through to approve the products being a MySuper products," he said.
Wood said the process would give retail funds better access to be included in modern awards.
"It gives them equal opportunity to be in the award," he said.
"Here is a clear set of criteria and here is what they need to be offering if they want to be included."
The Financial Services Council and many retail funds had suggested all MySuper approved products should be eligible for inclusion in awards, but the retail sector has responded positive to the proposals for greater transparency and more structured selection process.
"AMP welcomes the findings of the Productivity Commissions draft report released today which confirms that the choice of super funds in modern awards should be opened up to greater merit-based competition," a spokes person for the company said.
"We support measures to develop open and objective criteria for superannuation funds that wish to be eligible for default fund status under the awards system.
"Superannuation in the modern awards system currently limits superannuation choice for those Australians that work under the awards system.
"The establishment of an independent body to assess and select the default superannuation funds within modern awards will deliver greater competition and it will ultimately mean better retirement outcomes for more Australians."
The Australian Institute of Superannuation Trustees (AIST), which represents the not-for-profit sector, also welcomed the proposals, but said it viewed the report as a 'starting point for further discussions'.
AIST chief executive Fiona Reynolds said it was appropriate that the default selection process included a consideration of factors over and above meeting the MySuper criteria.
"Selecting the right default funds for a particular group of employees or workplace requires careful consideration," she said.
"At the end of the day, the process must be about protecting members and delivering results not just helping some funds make more money out of super.
"AIST is all for a transparent selection process that has members' interests as the only criteria for assessing default funds," she said.
