The Minister for Financial Services and Superannuation, Bill Shorten, today announced the final details of the Government’s Stronger Super policy, which has been received generally positively by the industry, although there remain some areas of concern.
The policy aims to “reduce the fees paid by members by up to 40 per cent” once all reforms are fully implemented and, overall, to reshape the super system to be as “user-friendly as possible”.
Last year’s Cooper Review proposed a one-size-fits-all approach to the entire superannuation industry, causing concerns over the feasibility and flexibility of the reforms.
The key elements of the Stronger Super reforms are:
- Introducing the default, low-cost MySuper product from July 1, 2013
- Providing APRA, ASIC and the ATO with tools to improve their oversight of superannuation
- Improving the administration and management of super accounts through SuperStream reforms, making the everyday transaction process faster, easier and cheaper for members and employers
“It’s in the national interest to encourage Australians to save more for their retirement. But it’s also fair the superannuation industry contributes to higher retirement savings through greater efficiency and lower fees,” Shorten announced today.
“I’m very pleased to see the great work done by Paul Costello and the consultation panel has resulted in the majority of recommendations being agreed to by the superannuation industry.”
Shorten expects the draft legislation on the core elements of MySuper to be released in the next few weeks. Legislation for Stronger Super will be introduced in tranches over the coming months and the first half of 2012.
Dante De Gori, general manager, policy and government relations for the Financial Planning Association of Australia (FPA), says the FPA broadly supports the package of reforms and particularly supports the SuperStream aspect.
“[It will] bring superannuation into the 21st Century and it’s obviously overdue,” De Gori says.
“We’re also happy with the changes in the self-managed super funds [SMSF] space. It will add to more certainty and confidence.”
De Gori says there are, however, core areas that the FPA still has concerns over.
“The first one is the false sense of security that consumers, the Australian public and definitely MySuper fund members will get from [assuming the product] is adequate for retirement with enough insurance cover because ‘MySuper is for me and the trustees have a greater obligation to make sure that it’s all right’,” he says.
“I’m really concerned that the message being sent is that they don’t need financial planners because now we’ve got MySuper.
“People are going to turn around when they’re 65 and realise their money in MySuper is not enough.
“That’s the unfortunate [outcome], the false sense of security.”
In addition, the FPA has concerns over the prescriptive fee arrangements for MySuper.
“What isn’t clear is whether or not intra-fund advice will fall inside one of those [fee] categories and whether it will be transparent or not,” De Gori says.
“So our concern is that if intra-fund advice is going to be provided by a MySuper product provider then that should be fully disclosed and transparent.”
De Gori says it’s also a concern that the existing corporate employer super plans will be forced over to MySuper by 2017 when they’re already achieving efficient and cost-effective solutions.
“So we think that’s unfortunate that the good guys are going to have to transfer across when they’re already doing and delivering what MySuper is attempting,” he says.
“Finally, the irony of compulsory consolidation being an opt out scenario as opposed to opt in.
“Australians will be forced to consolidate. Why isn’t that opt in? If it works in the advice space, why doesn’t it work in the superannuation space?
“The real impact we’re concerned about is the proposed change in 2014 [where] at the moment this compulsory consolidation is for accounts under $1000 and that’s going to have minimal impact on insurance benefits,” De Gori says.
“By 2014, the proposal is to increase that to $10,000, so any accounts under that amount will be automatically consolidated…and it’s very conceivable that members will have super accounts that they keep open purely for insurance purposes and so that could have some unintended consequences.”
Andrea Slattery, chief executive of the Self-Managed Super Fund Professionals’ Association of Australia (SPAA), says the Stronger Super reforms have generally been accepted but is disappointed with the new requirement for related party transactions to be conducted on a market where one exists.
“We believe the ban on off-market transfers for SMSFs places the SMSF sector at a significant disadvantage compared to other superannuation funds,” she says.
She says a more appropriate solution is for all funds to adopt a best practice guideline as a way of reducing any manipulation of capital gains tax (CGT) or excess contributions tax.
The Industry Super Network (ISN) says the reforms will deliver greater integrity to the super system as well as the financial advice industry but will encourage the Government to remove the $10,000 threshold for the consolidation of account balances when it’s due to increase in 2014.
“The integrity of Australia’s super system, demands that long-term net returns to members is the primary determinant in selecting workplace default funds,” David Whiteley, chief executive of ISN, said in a press release.
“Clearly, being a MySuper compliant fund will not assure a super fund of the right to be a workplace default fund. It does however, seek to raise the bar for all funds aspiring to manage the compulsory contributions of Australia’s employees.”
