When the Australian Council of Trade Unions (ACTU) and the union movement sought to expand workforce superannuation coverage more than twenty years ago there was opposition to the introduction of superannuation clauses within awards. As new national, consolidated federal awards are being finalised by the Australian Industrial Relations Commission (AIRC) that opposition has resurfaced.

The AIRC decision to name specific default funds in modern awards recognises long-standing superannuation arrangements.

Under Choice of Fund policy, if an employee does not specify which fund they would like their super contributions paid to, their employer is required to direct their superannuation contribution to a default super fund.

The AIRC has decided that all super funds that operated as default funds as of 12 September 2008 will continue to do so.  By preserving the status quo the AIRC has ensured that disruption and cost for employers and employees are minimised.

The AIRC decision ensures that workers are able to continue to choose their own super fund and negotiate collectively with their employer to select a default super fund. The decision ensures there is a strong superannuation safety net for the nine in ten workers that do not elect to choose their own super fund.

The super funds which will continue to be named in modern awards as default funds have been selected by agreement between employer and employee representatives in the relevant industry.  This process ensures that both employer and employee interests have been addressed, and an effective default system is in place for workers who choose not to choose.

Most of the existing default funds named in awards are industry super funds and other not-for-profit funds due to their lower average fees and better average long-term investment performance.  These factors mean employer associations and employee representatives have found that they generally represent a superior default vehicle for retirement savings.

Australian Prudential and Regulatory Authority (APRA) research released in October 2008 found that “retail fund expenses, explicit and embedded, lower the net earnings of the retail sector relative to the not-for-profit sector.”

Given that super is deferred wages it is appropriate that there is a process in place to ensure default funds operate to maximise employees’ future retirement savings.  By respecting the decisions of the industrial parties in selecting default funds, the AIRC has ensured that an adequate safety net is in place.

The new Modern Awards continue to be finalised and will commence operation on 1 January 2010.