Parliament will very soon have the opportunity to debate the Government’s ‘Your Future, Your Super’ reforms that were announced in the October 2020 Budget.
The reforms have only recently closed to public consultation, but already the battle lines are being drawn.
The Government’s objectives are noble, aimed at weeding out underperforming superannuation funds, empowering consumers to compare and switch funds, and enhancing the transparency and efficiency of the system for fund members.
No-one in the $3 trillion superannuation industry should oppose the sensible reforms which will benefit consumers – particularly the Your Future Your Super bill’s intent to ‘staple‘ people to one fund as an end to the scourge of multiple accounts costing billions in fees. These reforms are unarguably necessary if we want Australians to maintain confidence in our mandatory system.
The superannuation industry can only justify calls to maintain the universality of superannuation and increase the superannuation guarantee to 12 per cent – the next increase to 10 per cent is scheduled for 1 July this year – if the system becomes more efficient for consumers. If not, we risk continuing to pour cash into the current leaky bucket.
Retail superannuation funds – many but not all of which are represented by the Financial Services Council (FSC) – support the Hayne Royal Commission and Productivity Commission reforms to superannuation and are getting on with implementation. These funds have taken a lot of medicine and do not plan to let Australian consumers down again.
New FSC analysis on the benefits of the Royal Commission’s ‘stapling’ recommendation, where employees take their super account with them from job to job, like their tax file number, shows that consumers will save up to $1.8 billion in unnecessary fees in the first three years after implementation.
Hayne was unambiguous about the design of his ‘stapling’ recommendation, which prioritises consumers’ best interests over business models or commercial interests. The economic recovery currently underway has created a unique and urgent opportunity to implement this change. Strong employment growth creates an urgent need to protect employees who are re-entering the labour market from our system’s major flaw, defaulting into new, duplicate super accounts with every job, and paying fees that erode retirement savings.
The Your Future, Your Super reforms, however, are not without weaknesses and in particular we urge caution on the final design of the new benchmarking methodology.
To be crystal clear, the FSC supports weeding out underperforming funds. Duds need to go, we don’t care if they are run by a profit-making company or a trade union and employer group.
However, the custodians of our superannuation system are responsible for investing $3 trillion in savings and small changes in trustee decision-making can have major ramifications for the allocation of capital in the Australian economy. All sectors of the superannuation industry want to see capital continuing to flow to asset classes that generate strong, long-term returns for consumers, including private equity, debt and infrastructure.
The Government must ensure that the proposed benchmarks accurately measure the asset classes that they purport to measure. The FSC is concerned the catch all ‘other’ category, which is the benchmark for a range of unrelated asset classes, is too broad and risks changing trustee investment decisions to the long-term detriment of consumers, and even to the economy as a whole, as the weight of superannuation money continues to influence the market.
The FSC is also concerned that while funds have historically been required to set a CPI-linked investment return target, and have measured themselves against this objective in Government mandated dashboards, they will now be retrospectively assessed against new proposed benchmarks.
The FSC would support a transition period from the ‘CPI +’ target to the new benchmarks for funds that have met their historical investment objective. To be clear, this is not a dilution of the strength of the future test.
Unfortunately, with the revival in some quarters of the partisan “super wars” the space to have a meaningful policy debate is closing. It would be a mistake for Parliament to jettison the entire Bill – with its important Royal Commission recommendation – because of political feuds.
The Your Future, Your Super reforms may not be designed as the FSC would have chosen, but we recognise that to maintain public confidence in superannuation as contribution rates increase to 12 per cent the interests of consumers must be put first and the system made more efficient.
Sally Loane is the CEO of the Financial Services Council which represents retail superannuation funds, fund managers, life insurers and advice licensees.