The Government has announced superannuation reforms aimed at giving consumers, and APRA, more power in the superannuation system.
The Minister for Revenue and Financial Services, Kelly O’Dwyer, said the Government would introduce legislation to “give everyday Australians more power over their superannuation providers and strengthen the prudential framework to deliver a more transparent and accountable compulsory retirement savings system.”
“This comprehensive package will help deliver all Australians a strong and modern superannuation system that is solely focused on outcomes for all Australians who rely on these funds to secure their retirement,” said Minister O’Dwyer.
“The package has been developed with a clear objective to improve outcomes for consumers. The Turnbull Government believes that, given the compulsory nature of superannuation, Australians rightly expect the industry to be held to the highest standards of transparency and accountability. These reforms will ensure the superannuation system has a strong foundation today and into the future,” said the statement announcing the changes.
Some of the changes announced include:
- Introduce annual member meetings for super funds
- Requiring super funds to publish annual information on how the fund is managed, how fees are set, and “the way it spends members’ money”
- Making directors of super funds who breach their duties to members subject to the same civil and criminal penalties are directors of managed investment schemes
- A stronger annual assessment of MySuper product outcomes, “to ensure the investment and insurance strategies, fees, scale and returns are promoting the financial interests of MySuper members”.
- Give APRA more power to take “preventive and corrective action if it has prudential concerns about a fund or if a fund is not acting in the best interests of members”
- Give APRA more power to refuse or cancel a MySuper authorisation where it believes a licencee will fail to meet its obligations
Treasury has released a draft Bill, for consultation.
The statement by Minster O’Dwyer says the package includes a change to “close a legal loophole that has been used by unscrupulous employers to short-change employees who choose to make salary sacrifice contributions into their superannuation accounts”. However this change doesn’t appear to be in the draft legislation – there is no mention of Superannuation Guarantee or the Superannuation Guarantee (Administration) Act 1992 in the draft Bill or the Explanatory Memorandum.
As part of the change, the Government has tasked APRA with making it easier for super fund members to opt-out of automatic life and disability insurance in superannuation.
The draft legislation is called the Treasury Legislation Amendment (Improving Accountability and Member Outcomes in Superannuation) Bill 2017. The closing date for submission in response to the draft legislation is Friday the 11th of August 2017.
New protections should go further: ISA
Industry Super Australia has welcomed the new consumer protections, but says the changes should go further.
“Industry super funds will always support measures to enhance consumer protections and member interests,” said ISA Chief executive David Whiteley.
“We are concerned, however, that the changes do not go far enough, particularly on ‘Choice’ super products, unpaid super and multiple accounts,” he said.
ISA is concerned that the changes announced will lift standards for default MySuper products, but not the non-MySuper sector – which holds almost $1 trillion in assets.
“We welcome the emphasis on transparency and accountability, and urge the regulator to use the powers to investigate the cause of bank-owned super fund chronic underperformance,” said Mr Whiteley.
“The regulator must ascertain whether bank-owned super funds are prioritising shareholder interests over fund member interests, and the implications of this on retirement savings.”
Reforms need careful analysis to prevent unintended consequences: AIST
The Australian Institute of Superannuation Trustees (AIST) says the proposed reforms require “careful analysis” to ensure there are no unintended consequences for super fund members.
AIST CEO Eva Scheerlinck said that, while some of the proposed reforms to improve transparency and accountability were welcome, some of the proposals needed input from the superannuation industry to ensure they were workable for funds and of benefit to members.
Ms Scheerlinck said AIST would be closely examining the ‘outcomes test’ to ensure it didn’t take focus away from net returns.
“What really matters most to members is the amount of super they have at retirement,” Ms Scheerlinck said.
“When assessing and comparing MySuper funds, the paramount factor must always be long-term net returns.”
While AIST welcomes moves to simplify the process to opt-out of insurance, Ms Scheerlinck warned that there is a “significant” need to educate the public about the benefits an importance of insurance.
“Default life insurance is a critical component of superannuation and is often the only insurance that members have,” said Ms Scheerlinck.
Reforms have support of SMSFA, should improve retirement outcomes
The superannuation reforms have the support of the SMSF Association.
SMSF Association CEO John Maroney said: “Increasing transparency and accountability should lead to improved retirement savings outcomes for fund members, providing a better quality of life in retirement for Australians.”
“Requiring MySuper trustees to publish annual information on investment and insurance strategies, fees, and returns is a positive development for superannuation by giving members more information about how their fund is performing and being manage,” he said.
Mr Maroney said that allowing fund members to question the trustee board and executives, at an annual meeting, will promote accountability.
“Allowing APRA greater oversight and increased powers in regards to default MySuper funds will enhance its prudential regulation of these funds and help ensure that members who have the least active engagement with their superannuation are adequately protected,” Maroney said.
“We also support the Government’s intention to make opting out of automatic default life and disability insurance policies easier. This will help minimise the erosion of retirement savings that can be created by people having multiple insurance policies and superannuation fund accounts.”
“Erosion of retirement savings through unnecessary or unwanted insurance in superannuation has been of significant concern to the Association and we are pleased that the Government is taking action in this area.”
— Sky News Australia (@SkyNewsAust) July 24, 2017