The Minister responsible for superannuation has criticised the industry for “complacency and inertia”, while Government policies remain unenacted and serious reports languish without a response.
The superannuation industry is “beset with complacency and inertia”, said Jane Hume, Assistant Minister for Superannuation, Financial Services and Financial Technology, in an speech to the Financial Services Council Summit.
Pointing to work by the Productivity Commission, the Minister said the super system has “served Australians reasonably well”, but “a number of structural problems have eroded both trust in the system and members’ balances”.
“Yet we shouldn’t forget that our superannuation system is compulsory, and if the government is going to compel people to quarantine almost one dollar in every ten of their income today to be put away, saved and invested for up to 40 years, then the government has an obligation to ensure that the compulsory system must be efficient and work in its members’ interests. ”
“This will be done through higher standards of transparency, ensuring trustees live up to their name and manage funds solely in the best interests of members , and stronger powers for regulators to take action against trustees who breach their obligations to members.”
Hume said that now, “with the writing on the wall”, the superannuation industry was taking steps, to which the Minister asks: “Well where were you?”
“Why isn’t the industry taking action itself on long-standing problems we all know are there, instead of waiting to be dragged kicking and screaming by Government towards a solution?”
Measures which the industry has been “dragged” to, according to the Minister, include “curbing unnecessary insurance in super”, “eliminating multiple accounts”, merging more funds, improving the governance of boards and “coming up with their own solutions for income products in retirement beyond account based pensions”.
On this last point, super funds may have to come up with their own retirement income products because the Government initiative – Comprehensive Income Product for Retirement (CIPR) – was pushed back by two years, until July 2022.
This is indicative of the Government’s approach to superannuation policy – beset by delays and slow-going.
While the Minister is criticising the superannuation industry for not taking action, the Government hasn’t even reintroduced much of the superannuation legislation that lapsed at the election. Some of these measures, which apparently remain policy, stretch back to 2017 – such as expanding super choice, and at least one-third independent directors for super fund boards – while setting an objective for superannuation in legislation is from 2016.
Though the Government did manage to pass some superannuation legislation in March this year – around low-balance account and Super Guarantee.
Continuing the speech, Hume said the Government was “committed to implementing further protections from balance erosion due to unnecessary insurance through the Putting Members Interests First Bill”. The changes in this Bill were announced in the Budget in May 2018, but the Government was unable to get them through the Senate and they were dropped from another Bill in a deal with the Greens.
The Minister made no mention in the speech of an exemption for dangerous occupations – a key sticking point in trying to get the measure through the last Senate. The previous Minister had announced that young people would stay as opt-out for insurance, and amendments were drafted, but this has been dropped from the new Bill.
Hume said a number of the Government’s superannuation policies were “endorsed” by the Productivity Commission report on superannuation – a report which the Government hasn’t even properly responded to, despite having it since December last year. The Productivity Commission website still says: “There has not been a government response to this inquiry yet.”
The Financial Services Royal Commission “showed that superannuation funds were not outside the misconduct that plagued the financial sector,” said Hume.
“The Royal Commission’s final report included 15 recommendations, and one additional measure, specifically relating to the superannuation sector.”
“The Government agreed to all of these, and as I mentioned earlier, has already swiftly acted to implement a number.”
One of these recommendations was for people to have only a single default super fund, to which they would be ‘stapled’ and carry with them from job to job. The Government “agrees” with this recommendation, but has not set out any detail on how it would be implemented – there isn’t even a time frame for the measure in the Government’s Royal Commission roadmap.
“The Government has made it clear; we are going to implement these changes, because for a government to do anything less is a failure of its obligation to Australian workers and retirees,” said Hume.
“We are going to reframe the superannuation system so that it works for members – not just first and foremost – but solely. Superannuation, for all its achievements, is not perfect. Commission Hayne said it. The Productivity Commission said it.”
Super industry “languishing behind two dark shadows”: Senator
Liberal Senator Andrew Bragg, also speaking at the FSC conference, said the superannuation industry was “languishing behind two dark shadows”.
Bragg was elected at the 2019 election and has since been speaking on superannuation.
Bragg told the conference that there needed to be a focus on better governance and more transparency, according to a statement released on Facebook.
“One key principle in good governance is that of independence – independence from conflict of interest,” Bragg said, pointing the example uncovered by the (Hayne) Royal Commission of a super fund that charged $87 million in service fees to 220,000 members but didn’t provide the service.
In regard to transparency, Bragg said it was “inappropriate” that super fund members didn’t know about payments to ‘registered organisations’ – which include unions and employer groups.
“For example, the CFMMEU received $1.45 million in payments from super funds in 2017-18, a 90% increase from the previous year – conveniently just prior to the federal election.”
“Furthermore, over the last 12 years, the CFMMEU alone has received payments from super funds of over 14 million, the most of any union.”
Bragg also questioned the motives of those opposed to the Government’s policies.
“Ultimately the only groups that stand against better governance and transparency stand to benefit from the current system – which by Hayne’s admission is too dark and opaque.”
The Coalition frequently criticises the links between unions and industry super funds. The Productivity Commission found that “not-for-profit funds [which includes industry funds], as a group, have systematically outperformed retail funds” – something that a former Minister refused to concede.