The Australian Labor Party’s Shadow Assistant Treasurer Stephen Jones has described as “crazy” the government’s decision to not consult with industry on the divisive performance benchmark and stapling measures outlined in the government’s ‘Your Super, Your Future’ plan.
“My understanding is there won’t be a consultation draft of the legislation which I think is crazy. You either have it at the front end or you have it through the parliament, one way or the other there’s going to have to be a delivery of process and the government don’t seem willing to do this,” Jones said during an interview via Zoom on Monday morning.
A draft of the Your Super, Your Future reforms are understood to be ready for introduction into parliament as soon as this week.
Jones expressed support for some kind of a performance benchmark to hold underperforming funds to account, but he said the government’s current proposal falls short.
“I think [the government] seems to have rushed to a model; they’ve decided they were going to move on the Productivity Commission recommendation, and said ‘let’s just grab the heatmap one’,” Jones outlined.
He added that he is not averse to introducing a performance benchmarking test that “holds funds’ feet to the fire” and leads to the closing down of underperforming funds, but he did not say exactly what the performance test should be.
“If government genuinely want a bipartisan approach, then offer up a deliberative legislative process that enables industry input and is interested in analysis of strengths and weaknesses of what has been put up so we can put up something that stands the test of time,” Jones said, during a call with Investment Magazine and the Conexus Institute’s executive director and chairman.
A ‘chronic problem’
Jones offered some insight into the challenges policy makers have in the current environment in which stakeholders are losing patience with industry special interest groups within the industry as well as regulators.
“We have a whole bunch of funds that won’t close unless they are forced, we just know that. We’ve just got 20 years of proof that unless there is a hard red light they won’t close themselves down, that’s why we need a hard objective tool to enable us to do that. We just want to close the right ones down,” Jones said. He added that dozens of funds had been in touch directly with him expressing their views on the “flawed” performance test benchmark.
He also added that underperformance of funds has been a “chronic problem” which has happened on APRA’s watch. He added that the latest controversies which led to the displacement of ASIC’s commissioner and deputy commissioner “could not have happened at a worse time” for there to be focus on government policy.
Irrespective of the current challenges in the political and policy environment, Jones expressed a strong desire to bring industry into the process regarding the reforms currently on the table.
“I believe in benchmarking, I believe in performance testing. I believe there should be some triggers in there and if you fail it forces funds to act in the best interests of their members and the system as a whole… I think there should be strong industry consultation but I don’t think the [government’s] existing implementation timeline and processes will provide that,” he said.
Government ‘looked over the edge’
On the apparent “existential threat” the superannuation system faces as the spluttering economy and poor expected wage growth has put superannuation guarantee (SG) and preservation limits firmly at the top of the national agenda, Jones expects the biggest battles are ahead of the industry.
Jones said he believed the government considered freezing the SG at the current level in the Your Super, Your Future budget plan, a plan he expects will re-emerge sometime next year.
“They walked up to the ledge, looked over and thought, ‘nope not worth it’,” Jones described.
Given the SG is not scheduled to increase under the current framework until July next year the government is unlikely to make a decision on freezing the SG or otherwise now, Jones predicted.
“A freeze [of the SG] was absolutely being considered [leading into the budget] as were a bunch of options including commuting payments, I think they’re just kicked those decisions down the road,” he said.
Freezing the SG or compromising the intent of the current settings predictably won’t wash with Jones’s camp, although he notes industry could do more to help its cause.
“Fees have got to come down commensurate with scale, scale has increased across the industry, we need fees to come down as a factor of that,” he said.
“I think all the arguments against increasing the SG are incredibly weak.”
“We have sent a message to the government that if they introduce things that we believe to be an existential threat to the system, we will fight them tooth and nail every step of the way. However if they want to focus on some of the PC recommendations which are around fund performance, returns to members, system improvement, you’ll have our 100 per cent support on these issues to be properly implemented,” he said.