According to the plan detailed by the Productivity Commission, super funds would engage in a bidding war, with the provider with the lowest fees awarded a national tender.
Under the plan, new employees would be placed in a single default fund instead of an employer-nominated one.
If the plan was to go ahead, a national tender could be awarded every two years, as is the case in other countries.
According to the Grattan Institute, if such a system was established in Australia it could save over $1 billion in fees per year.
The proposal was inspired by a similar system functioning in Chile, where the national tender is awarded every two years and has resulted in significant fee savings.
According to the Grattan Institute, the initial tender in Chile slashed fees by 20 per cent when it was awarded in 2008, with the current one charging 65 per cent less than under the old system.
The Productivity Commission says those already in employer selected default funds under the current system would not be obliged to switch to the national default if introduced, but would have the option available to them if they so chose.
Without being an expert in the financial industry within Chile I would question if the only criteria which should be considered is cost. Cash is generally the most cost effective solution however for a 40 year investment it is generally not considered the most suitable.
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