Changes to the system of setting default super funds are coming by the end of 2020, according to Assistant Minister Jane Hume, though it’s unclear if the Government has settled on a model to implement.
Jane Hume, Assistant Minister for Superannuation, Financial Services and Financial Technology, has flagged changes to the default super system, while also indicating the changes will be legislated before the end of the year.
Both the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services and the Productivity Commission have recommended changes to the default superannuation system. The Royal Commission recommended people only have one default super account, with a ‘stapling’ system developed. The Productivity Commission recommended more sweeping changes, with a ‘best in show’ list of funds from which employees would choose their fund. But while the Government has agreed with the Royal Commission recommendation, it has yet to set out a policy. Despite having the Productivity Commission report for over a year, the Government has yet to give a substantive response.
Now, Jane Hume, Assistant Minister for Superannuation, Financial Services and Financial Technology, has said the Government will do something – without committing to a particular model for a new default super system – and to have it legislated by the end of 2020.
Hume said, in a speech, that the Government would have all the recommendations of the Hayne Royal Commission implemented this year – “90% legislated by mid-year, and all of them by the end of 2020”. This goes beyond what the Government has already promised; the Government’s own timetable for recommendations only has the legislation “introduced” to Parliament, not passed. There is also no date for implementation of several recommendations, including the recommendation on default accounts. Additionally the Government hasn’t accepted all the recommendations of the Royal Commission, hence the use of the phrase ‘taking action’ on all the recommendations – the Government eventually rejected the recommendation to ban trailing commission for mortgage brokers.
Update: Comments by Treasurer Josh Frydenberg indicate the end of 2020 target date is only for the measures to be introduced the Parliament – not legislated – and may exclude the default super and other ‘other measures’.
Hume said that with $3 trillion in assets, the super system is “big enough to stand on its own two feet”.
“Yes, payment of superannuation savings is a workplace entitlement, as much as payment of wages is. But just as our bank account for our wages is not dictated by our choice of job, and we don’t change banks every time we change jobs, likewise, our choice of superannuation fund will in the future be not be dictated by our workplace.”
However Hume didn’t commit the Government to a particular policy.
“So while I’m not going to say today where the Government will land on the question of default fund choice, stapled accounts, best-in-show and all the various other models out there, I will venture to suggest we won’t get to our desired destination of an efficient, single default while the superannuation child is still living at home. In two years’ time our compulsory super system turns thirty. It’s time it grew up.”
2020 a “big year for superannuation”
Hume also used the speech to highlight several of the Government’s other superannuation policies, saying that 2020 was “going to be a big year for superannuation”.
And believe me, it’s going to be a big year for superannuation – because on top of the implementation of all of the recommendations of Hayne – 90% legislated by mid-year, and all of them by the end of 2020, we have a lot of other wood to chop.
Hume said a desire to have outstanding unpaid superannuation was the “driving force” behind the proposed Superannuation Guarantee amnesty for employers, which may be voted on in the Senate next week.
With the introduction of Single Touch Payroll, the “undetected underpayment of workers entitlements to superannuation – whether intentional or inadvertent – will be almost impossible in the future”.
“But that doesn’t deal with the past.”
“That’s where the amnesty comes in. It encourages employers to come forward and pay historical superannuation guarantee debts, by waiving penalties and administration fees, and allowing the make-good payments to be tax deductible in the same way as regular super contributions are.”
“Let me be clear: the amnesty does not reduce employees’ entitlements by one cent, nor does it let employers off the hook,” said Hume. Though this is disputed by Labor members, who are concerned it will let employers “wipe the slate clean” where records don’t stretch back far enough.
“The only person getting less out of this arrangement is the Federal Government – we are waiving our entitlement to fees and penalties. And we’re doing it because we want to see workers get any superannuation they’re owed, paid in full, plus sizeable interest on top,” said Hume.
“Further, our Bill proposes that employers who fail to come forward during the amnesty and who are later found to have historical SG non-compliance will face very heavy penalties.
“So it’s carrot, and stick.”
The Government already legislated potential jail sentences for employers not paying their Super Guarantee obligations.
Another piece of superannuation legislation currently before the Parliament would expand super choice by stopping future workplace determinations or enterprise agreements from restricting choice of super fund.
“We also know there are thousands of workers that are being forced into some of the worst performing default products as a result of these restrictions on choice,” said Hume
Some groups making submissions to a Senate inquiry into the Bill have recommended that underperforming super funds be removed from the default super system. The ACTU says the Bill gives the banks, and the super fund they own, “exactly what they want”.
Labor may support the Bill, potentially with amendments, despite the opposition from unions.
Turning to super fund governance, Hume said: “I’m not here to stoke super culture wars. I’m motivated by member outcomes ”
“I know the Boards of trustees of these multi-billion dollar funds are aware of the immense responsibilities they now shoulder and the higher regulatory scrutiny they’re under in the post-Hayne era. They want to have the best brains around the table to help.”
“As super funds grow to tens of billions in size, many are choosing of their own accord to bring in trustee directors with skills outside their sponsoring organisations – be they industry, retail or corporate funds.”
“That’s a welcome and appropriate development as they reshape and right-size their boards. I expect to see that trend continue in 2020.”
Hume didn’t mention the Government’s policy of requiring super fund boards to have at least one-third independent directors and an independent chair, if it remains policy. Legislation for this change stalled in the Senate and lapsed with the election, and has yet to be reintroduced.
The Government expects to introduce legislation in “coming weeks” to implement it’s plan to, effectively, shut down Eligible Rollover Funds (ERFs).
Legislation to make CGT relief for super fund mergers permanent – announced in the 2019 Budget – will be “introduced imminently, and with bipartisan support I can confidently say it will be in place before 1 July this year,” Hume said.