The Australian Government's Your Future, Your Super exposure draft legislation has been widely welcomed, but industry experts are calling for more details to be released, and say several flaws need to be addressed.
At a glance
- Proposed reforms to superannuation, detailed in the Your Future, Your Super package, aim to improve the quality of MySuper products.
- Treasury estimates that the changes could result in savings of A$17.9 billion over 10 years, and place greater onus on super trustees to act in the best interests of their members.
- Industry associations view the proposed reforms as positive overall, but have called for more information and highlighted the need for better consumer education on super.
By Zilla Efrat
The proposed Your Future, Your Super legislation, released in November 2020, requires the Australian Prudential Regulation Authority (APRA) to conduct an annual performance test for MySuper, or the default super, products.
Trustees will have to inform members when a super product fails the test. If that product fails the test in two consecutive years, the trustees will not be allowed to accept new consumers into that product.
As part of the proposed changes, superannuation products will be ranked and published on a website maintained by the Australian Taxation Office.
To avoid the problem of employees accumulating multiple super accounts, which attract multiple fees, employers will be required to make contributions into their employees’ existing super fund by default, if they have one. That means a super account will be “stapled” to a person and follow them from job to job.
The changes, which Treasury says will save Australians A$17.9 billion over 10 years, also require super trustees to act in the best financial interests of their members when it comes to day-to-day essential operational and discretionary expenditure, as well as investing members’ money.
If passed, the reform package will come into effect on 1 July 2021.
A safer super environment
“Overall, these are really positive reforms for consumers,” says Xavier O’Halloran, director at consumer advocate group Super Consumers Australia (SCA).
“They are going to make life a lot easier in terms of managing your super. Things like getting rid of duplicated accounts, having a comparison tool and the crackdown on chronic underperformers will make the market a lot safer.
“The reforms give those who engage with their super the tools to do so. For those who don’t, the performance benchmarks will kick in and force funds to operate better, look for a merger or drop their fees to perform above that benchmark.”
Like SCA, organisations including the Association of Superannuation Funds of Australia (ASFA) and the Australian Institute of Superannuation Trustees (AIST) welcome the intent of the proposed legislation, but they also raise concerns.
One concern is the lack of information provided on the proposed legislation, with much of the details to be contained in regulations.
Concerns to be addressed
ASFA and AIST have both called for draft regulations to be released before the legislation is introduced into parliament, so that these can be debated.
A common criticism is that the benchmark for the proposed performance test does not include fees deducted from members’ accounts.
“Investment returns are only part of the picture,” says O’Halloran. “Administration fees make up a huge part of what a consumer’s outcome will be at the end of the day.”
AIST believes the annual performance assessment and YourSuper comparison tool should also cover all APRA-regulated super products in the legislation.
“Without this, members of products not included in the YourSuper comparison tool and performance assessment will be unable to compare the performance of their funds,” AIST says in its submission.
"The reforms give those who engage with their super the tools to do so. For those who don't, the performance benchmarks will kick in and force funds to operate better, look for a merger or drop their fees to perform above that benchmark." Xavier O'Halloran, Super Consumers Australia
“The Productivity Commission found that choice products underperform MySuper products on average. It is important that the worst areas of underperformance in the system are addressed.”
There is also concern that employees who choose default corporate super funds or self-managed super funds would be not be covered by the proposed legislation.
However, O’Halloran notes that, “while the initial legislation only applies to MySuper products, the government’s intent is to expand it out to a new category of products, which it is calling trustee-directed products”.
“We don’t know how rankings will work and have suggested that the government find out more about the consumers involved, as different people have different needs.”
Given the concerns around the proposed performance test, ASFA suggests the government consider a two year “trial run” of the test to allow it and the benchmarking methodology to be refined, if necessary.
CPA Australia resource:
'Your Future, Your Super package' submission (PDF)
Nicole Oborne CPA, partner at PwC and member of CPA Australia’s Retirement Savings Centre of Excellence, sees potential risks in the performance comparison. “Just because you made a good return yesterday doesn’t mean you are going to make a good return tomorrow, because the risk you took yesterday was in a different economic environment.
“The comparison is not going to be the ‘silver bullet’ to people’s choice, but it could become a critical piece of information superannuants might put a lot of confidence in.”
Oborne believes the changes should be accompanied by more consumer education.
“You need to educate people on the how and why this is coming about. Everyone knows that 9.5 per cent of your salary goes into a super fund, but there are still many Australians who don’t exercise their choice,” she says.
“The government should also be focusing on education and access to advice to enable individuals to make better choices for themselves.”
Oborne would also like to see some moves towards simplifying super. “It is not an easy regime to understand. It’s complicated. The reforms that are on us continue to complicate it more in many ways,” she says.