A fierce fight looks likely between the federal government and the $2 trillion superannuation industry over a plan to overhaul the default superannuation system.
Financial services minister Kelly O'Dwyer on Wednesday strongly backed the central recommendation of the Productivity Commission report released earlier this week which recommended dismantling the current system of default superannuation funds.
Ms O'Dwyer told ABC Radio that it was a fundamental right that employees should be able to choose where their money goes whilst noting the commission's work was still only a draft report canvasing several options and she would not pre-empt the final version by revealing her preferred options.
"We want a system that works for people and we make no apologies about wanting to put people first. Not the funds themselves, not the vested interest, but we want people to be put first in this," Ms O'Dwyer said.
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But it was clear that Ms O'Dwyer supported a change to the current system, to end the special status given to union-affiliated industry funds currently embedded in industrial awards as default options for workers.
"The Productivity Commission has found that one of the most egregious failings in our system at the moment is the proliferation of these default funds which can reduce a retiree's balance by around about $25,000 on average. Now that's not insignificant," she said.
The Productivity Commission suggested several options to ensure that workers placed into a default super fund - those who don't or can't nominate a fund or their choice - receive good returns after fees.
A central plank is to open up competition among super funds to be a default provider, a move that could provide a boon to for-profit retail funds dominated by the big banks.
This could be achieved by measures such as removing the concept of a default and forcing consumers to choose, letting employers pick on behalf of their workforce, or running a government-backed tender.
Another core idea is to give employees a single default super option that travels from job to job to reduce the problem of workers winding up with multiple accounts.
David Whiteley, chief executive of Industry Super Australia, said policy makers should look at ways to reduce the number of people with multiple accounts but without undermining the "trusted and independent" default system.
"There is already is a long-standing default system of 25 years. It's successful in that the funds included in the awards system outperform, it is trusted by the public, is independent and overseen by the Fair Work Commission," Mr Whiteley said.
The Australian Institute of Superannuation Trustees (AIST), which represents not-for-profit funds and includes the majority of default super members, was scathing of the commission's failure to assess the existing system or provide evidence that changing it would benefit members.
"To propose a radical shakeup of default fund selection without even bothering to review the existing system is not only ludicrous, but also inefficient," AIST chief executive Eva Scheerlinck said.
Labor's spokesman for employment and workplace relations Brendan O'Connor said in directing the Productivity Commission to examine super, the government was looking to "gouge, disrupt and interfere with industry super funds because they have an ideological problem with them."
Sally Loane, chief executive of the Financial Services Council, said the status quo put industry self-interest ahead of consumers.
"Superannuation is the best way for every Australian to save for retirement and all of us should be able to choose what fund is best for our needs," Ms Loane said.
Choice chief executive Alan Kirkland said the proposal would eliminate $150 million of waste and have a life-changing improvement on the retirement savings of Australians.
"For young people, many of whom are part-time and working multiple jobs as part of the 'gig economy', multiple accounts are having a devastating impact on retirement savings," Mr Kirkland said.
"Trying to fix this by getting people to consolidate their super accounts hasn't worked. We need to stop the problem happening in the first place."
Jim Minifie, the productivity growth program director at the Grattan Institute, said the Productivity Commission was right to consider different options.
"If people are forced to save 10 per cent of their pretax income the government has a responsibility to ensure that the system is delivering good outcomes for people," Mr Minifie said.
"It strikes me that any serious policymaker would want to be able to assess today's default arrangements to alternatives. The Productivity Commission has correctly observed there's no logical reason why the super system should be embedded in the industrial relations system, but nevertheless the performance difference is there."
Of the options put forward by the Productivity Commission, Mr Minifie preferred the proposal of having a tender process to determine default providers, while letting interested consumers choose for themselves.
Additional reportage by John Collett and Eryk Bagshaw.