Superannuation efficiency and competitiveness: Rice Warner’s submission to the Productivity Commission

In its final report (November 2014), the Financial System Inquiry (FSI) commented that “the superannuation system is not operating efficiently due to a lack of strong price-based competition”.

Amongst several significant recommendations for change in the superannuation industry, it gave notice that more efficiency is needed or a new system of allocating new default fund members into MySuper products would be required, “unless a review by 2020 concludes that the Stronger Super reforms have been effective in significantly improving competition and efficiency in the superannuation system”.

Clearly, it is important to develop a sound mechanism for measuring both competition and efficiency or this review cannot be undertaken objectively. The FSI recommended developing criteria to assess different types of efficiency:

• Operational efficiency – where products and services are delivered in a way that minimises cost and maximises value.
• Allocative efficiency – where the system allocates resources to the most productive use and optimal balance between consumption and savings over time.
• Dynamic efficiency – (including services to members) where the system encourages optimum behaviour by or on behalf of consumers.

Consequently, in February this year, the Treasurer appointed the Productivity Commission (‘Commission’) to conduct a study in two parts, namely:

• To develop criteria to assess the efficiency and competitiveness of the superannuation system.
• To develop alternative models for a formal competitive process for allocating default fund members to products. The analysis will be done in two stages and on Tuesday 2 August, the Commission released its draft report on the first part, How to Assess the Competitiveness and Efficiency of the Superannuation System.

This submission is a response to that draft report.