Fund boss says bank pressure on business to switch default superannuation funds is widespread

The head of an industry superannuation fund says the unlawful practice of banks using special inducements to win default superannuation accounts from business is widespread.

Andrew Proebstl, chief executive of LegalSuper, says employers who take inducements from banks in return for switching a fund should be forced to disclose any special deals given that the compulsory superannuation of their staff is exposed.

Earlier this week, AM reported that businesses are regularly offered lower interest rates, banks fees, corporate hospitality and Ipads to switch to a bank-run default superannuation fund which manages the 9.25 percent employer contribution.

Mr Proebstl, who oversees the management of compulsory superannuation for 40 percent of the legal profession, says some employers succumb to the pressure to ensure that don't miss out on business opportunities with banks and insurance companies.

"It is fairly predominant and there are employers who may have commercial business that they conduct with particular financial institutions that offer superannuation funds. They make the decision that by choosing that financial institution's default fund, they may more favourably position themselves to have commercial dealing with that financial institution," Mr Proebstl said.

However, Mr Proebstl said employers had a responsibility to disclose any special deals with banks to staff to avoid real or perceived conflicts of interest.

"Essentially the superannuation savings involved are the savings of the employees, they're not an asset of the employer in any way. The employer would need to be very careful if they were in these sort of circumstances, that they had due process around their selection and decision making processes," Mr Proebstl said.

"If there are circumstances where there is even the smallest potential for some form of conflict of interest, an employer should be obliged to disclose the nature of any commercial arrangement or relationship they have with a super fund they're doing business with."

Mr Proebstl said while employees have a right to know how their superannuation is being managed, they might not be comfortable challenging the decision of their employer to appoint a particular default superannuation fund.

"They basically prefer to have harmony with their employer and would prefer to not do something that might be interpreted by an employer as questioning the decision they've taken," Mr Proebstl said.

The banking regulator APRA and the corporate watchdog ASIC are investigating the claims made by Industry Super Australia in a survey of small and medium businesses.

But Mr Proebstl agrees that while regulators need to enforce the law, the methods used by banks and insurance companies could make the allegations of unlawful activity difficult to prove.

"I think one of the challenges is that many of the dealings are very translucent so it's very difficult to pin particular instances of where this has happened," Mr Proebstl said.

"Ultimately, it really can only be addressed by an increase in disclosure requirements around these arrangements so that members can be fully informed."