Superannuation funds should be prevented from offering expanded personal financial advice to members until all account-based pension (ABP) products have been subjected to an APRA performance test, according to a report released this week by the Grattan Institute.
The report, Simpler super: Taking the stress out of retirement, also recommends that the government establish a UK-like pensions guidance service to provide general and personal financial advice to fund members, to bridge a gap between the guidance funds are providing to members now, and the advice provided by professional advisers.
A co-author of the report, Grattan Institute deputy program director for housing and economic security Joey Moloney, says better advice and guidance for super fund members transition to retirement is critical.

However, he says the Quality of Advice Review – and the subsequent government legislative response from the government known as the Delivering Better Financial Outcomes – demonstrated that “financial advice regulation is pretty much broken now”.
“We’ve got some reforms underway and on the horizon to try to fix that up and make it easier for funds to provide personal advice on a narrower set of topics, more cheaply to their membership, and we think that’s pretty good,” Moloney tells Professional Planner.
“Inevitably, people are going to turn to their super fund for help, and you need a regulatory environment where it is easy for super funds to be helpful.”
The problem, Moloney says, is that surveys show “a reasonable amount of people” are sceptical about the advice provided by their fund, “presumably because they’re worried about the conflict of interest that arises with vertical integration”.
“The advice the super fund gives you, you want to be in your best interest, but inevitably you’ve got an issue where the super fund might have their own interests as well,” he says.
“That’s not to besmirch super funds at all. It’s just the reality of life that conflicts of interest, real or perceived, can affect people’s level of trust.”
Retiring smart
The report recommends the government establish a service, which it calls Retire Smart, akin to the UK Pension Wise service that offers free and impartial guidance to people aged over 50, established in 2015 to ensure individuals were properly assisted under the so-called Pension Freedoms reforms, which did away with compulsory annuitisation.
It says Pension Wise has “quickly become central to the UK retirement income system”, filling about 100,000 appointments a year and costing $32 million (Australian dollars) to run in FY23.
“In 2023, 30 per cent of people who had accessed their balance in the past four years had used Pension Wise,” it says.
Moloney says the government could “do a better job at consolidating the different pieces of advice and guidance that it offers at the moment”, which includes the Money Smart website and the Financial Information Service.
These services could be scaled up and made “more personally useful” for fund members, he says, to make it “possible to provide some limited personal advice – because the system’s so complicated, and if you can’t get your questions answered in a personally useful way, often what you get is not really that useful anyway”.
“There’s a case for the government to step in and be and provide better guidance and advice here, on top of what funds are doing just to plug that hole.”
The Grattan report says super funds should be restricted from providing expanded personal advice until ABP performance tests are in place and “all retirement products are included in APRA’s performance assessments”.
The report says the Your Future Your Super performance test should be extended to the simple ABPs super funds offer to retirees.
“The complexity of the retirement income system means funds should be able to help their members on a more personal level,” the report says.
“But if these moves are to work in the interests of retirees rather than funds, the government should first create a stronger market design. The Delivering Better Financial Outcomes package should therefore only proceed once account-based pensions are performance tested, and all retirement products are included in APRA’s performance assessments.”
However, a Treasury consultation last year that canvassed the idea of extending the YFYS performance test to retirement products received heavy pushback from the industry.
Strong case for consumer protection
Moloney says there’s “a really, really strong case for having good consumer protections in place” before proceeding with a model of “vertically integrated, conflicted personal advice” super funds would provide.
“The conflicts of interest aren’t fatal, like we’ve said; we think this is directionally the right way to go, because it’s kind of untenable for super funds to not be able to be more helpful,” he says.
“But at a minimum, we should have some sort of baseline of consumer protection to ensure that the products that people might be advised into are of some minimum level of quality. Right now, the best tool we’ve got when it comes to investment portfolios is the performance test.”
Even though super funds have a duty to meet members’ best financial interests and advisers have a Best Interests Duty, Moloney says they’re insufficient protections.
“I’ve always thought of best interest duties as nice, guiding lights,” he says.
“They’re a nice principle, but clearly history shows that they don’t have the teeth that sort of protect consumers from all bad outcomes.
“Best interest is more of an affirmation…that trustees should always be anchoring back to. But it’s not a substitute for real, actual on-the-ground, bread and butter, consumer protections, actually making sure that on the dimensions that matter, the products that people the products and services that people are getting are sufficient quality.”
Moloney said that as the performance test is currently applied, the consequences for an account ABP for failing the performance test would be the same as for a MySuper fund – failing the test twice would see the ABP closed to new members.
only academia would come up with this as a ‘solution’. Reworded it says let’s not help people today or next year let’s work on an overarching solution that doesn’t help anyone now. Really? there are stepping stones that can be worked into advice and it’s not based on unqualified staff. The institute seems to have missed the main point point which is millions need guidance now.