The superannuation industry shouldn't underestimate the pain or amount of difficulty it will experience if the proposed rationalisation of underperforming funds eventuates, the second day of Productivity Commission public hearings was told in Melbourne.
PwC partner Cathy Nance was the latest to appear before the Commission tasked at improving the efficiency and competitiveness of the superannuation system.
Nance argued the level underperforming funds that continue to operate was unsustainable and at the expense of members.
"We think over 100 MySuper, 200 funds and 40,000 choice products can't be efficient and the members are paying for that," she said.
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While PwC supports the PC's draft recommendations and proposed solutions, some are not without risks or concerns, and the difficulty associated with them shouldn't be underestimated. Rationalisation will ultimately result in job losses - which undoubtedly will be painful - it is however time to do the right thing by members, she said.
Nance likened the current situation in superannuation to rationalisation that took place in the credit union industry whereby larger entities took over smaller entities with poor performing loan books.
Some poor performing funds are almost in denial and "preserving" the situation because it's hard for them to face the fact that members are better off elsewhere, she said.
"I think as long as the large funds aren't held to prove that suddenly their members aren't going to be better off as a result of a merger, which is almost impossible to prove, that should just [be a consequence] of industry rationalisation," Nance added.
Australian Institute of Superannuation Trustees (AIST) head of advocacy Ailsa Goodwin, who also fronted the morning session, said a lot of members are engaged and "very happy" with their default fund despite the PC's call for the industry to step up in this area.
Goodwin said members are best served in no frills, low-fee, balanced or growth products, and pointed out that engagement doesn't align with giving members choice.
It's important to note that as a consequence of choice, many members have been put in products that were sold to them by financial advisers and reforms in the industry hasn't done enough to fix it, she said.
Goodwin added advisers should be able to show clients switching super funds how much better or worse off in retirement they will be if moving from a default product.