The suitability and cost of life insurance provided in default superannuation funds is to be reviewed by the Productivity Commission.

The overall review will look at how default funds are selected as part of modern awards and the ongoing assessment of the fund’s performance.

The Federal Government has appointed the former Chairman of the Stronger Super Peak Consultative Group, Paul Costello, as a part-time associate commissioner to help the inquiry.

Assistant Treasurer Mark Arbib says the Government believes default funds should continue to be included in modern awards, but there should also be a transparent set of criteria to assess funds.

“This inquiry seeks to develop transparent and objective criteria against which funds wishing to be eligible for default fund status in modern awards can be assessed,” he said.

The move has been welcomed by the financial services industry, which has been calling for more scrutiny on how default funds operate.

Federal Opposition financial services spokesman Mathias Cormann says the Coalition welcomes the move to design a more open, transparent and competitive process for selecting default funds.

“The current process is not transparent, not competitive and inappropriately favours union dominated industry super funds,” he said.

“Bill Shorten (Minister for Superannuation) did his best to protect the best interests of his friends in the union movement for as long as possible.”

Financial Services Council CEO John Brogden says the current process for selecting default funds is a closed shop, anti-competitive and has failed to protect consumers. 

“Currently, the only way default funds can be added to an award is through the recommendation and agreement of employer groups and unions – an inadequate process that is riddled with conflicts of interest.”

Mr Brogden says many union and employer group representatives who decide which funds will be listed in awards are themselves trustees of the superannuation funds they recommend.