Our take on last night's proposals 5 min read
Last night, the Government released a paper entitled 'Your Future, Your Super' setting out 'reforms to make your super work harder for you'. This article summarises the measures and gives our take on them. The Government aims to legislate the measures before the end of the year, with a start date of 1 July 2021.
This is about stopping 'the creation of millions of unintended multiple accounts'. When you start a new job, the default position will change. You will no longer be defaulted into your new employer's nominated default fund. Instead, your new employer will contribute to your existing account. (If you already have multiple accounts, it is not clear which one your new employer will contribute to, although the intention seems to be that it will be your most recent active account.) While the default position will change, as described, it will still be open to you to choose your new employer's nominated default fund. And if you are new to the workforce, and do not make a choice, you will still be defaulted into your employer's nominated default fund.
The measure implements recommendations by the Productivity Commission and the Royal Commission. However, there does not appear to be any recognition of the fact that employers routinely negotiate administration fee discounts for their nominated default fund and those discounts cease to apply when an employed member ceases to be employed. In this way, joining your new employer's nominated default fund, and transferring your earlier account (now subject to undiscounted fees) to that fund, can often be the sensible thing to do. The Government's paper does not include any recognition that, in the absence of addressing the reality of how employers negotiate fee discounts (and the MySuper rules that inform that practice), this measure will result in retirement savings being subject to higher fees than would otherwise be the case.
The Government will develop a new interactive online 'YourSuper' comparison tool which will 'allow you to make better decisions about which MySuper fund manages your savings'. From 1 July 2021 the tool will, on a quarterly basis, rank MySuper products by fees and investment returns. Underperforming products (see the next section) will be clearly marked as underperforming. The tool will be 'based on information that superannuation funds report to APRA and will be developed in consultation with the Treasury'. It will be administered by the ATO.
This measure appears to be little more than producing a more readily understandable and accessible version of APRA's 'heatmap'.
The Government will develop a new annual 'test' for measuring the performance of superannuation products. The test will be based on the methodology adopted by the Productivity Commission and further refined by APRA in its 'heatmap' analysis. Once finalised, the test will be set in regulations by the Government and will be administered by APRA. The test will be applied to MySuper products from 1 July 2021 and trustees whose products 'fail the test' will have to notify their members by 1 October 2021. Then, from 1 July 2022, the test will be extended to 'trustee-directed products' outside MySuper. These are accumulation products in APRA regulated funds where 'the trustee has control over the design and implementation of the investment strategy' and 'the investment strategy covers more than one asset class'. Products that fail two consecutive annual tests will not be able to accept new members unless and until their performance improves.
The idea of a 'trustee-directed product' does not seem very clear, particularly as it appears to be an investment option, not a product. Introducing a new annual 'test' begs questions about some existing features of the superannuation system – APRA's heatmaps and the annual member outcomes self-assessment. And the answer to those questions is: 'the APRA Heatmaps and the annual member outcomes self-assessment under existing law will be amended accordingly'. Quite. Plainly, the Government that introduced the annual member outcomes self-assessment, just last year, has already lost any faith it previously had in the assessment being a self-assessment, rather than an independent assessment.
The Government will legislate 'to compel superannuation trustees to act in the best financial interests of their members'. Doing so will give effect to a recommendation of the Productivity Commission. It will also expand (and regulate in greater detail) the information that must be provided to a member ahead of the Annual Members' Meeting. The required information will include the member's most recent periodic statement, a summary of all significant event notices sent in the last financial year and information about a range of payments (eg political donations) and related party transactions.
The Productivity Commission's recommendation 'to clarify what it means for a trustee to act in members' best interests' was, with respect, a poor idea and one that we had hoped would be left to gather dust. Apparently that is not to be the case and, instead, legislators are going to have yet another go at reworking the duties of a superannuation trustee. As readers will be aware, trustees already have a duty to exercise their powers in the best interests of fund beneficiaries and to promote their financial interests, 'in particular returns to those beneficiaries (after the deduction of fees, costs and taxes)'.
Although not forming part of the YourSuper paper, we were also very interested to see that the Government intends to amend the Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020 to:
Allow all superannuation funds to voluntarily transfer amounts to the ATO in circumstances where the trustee believes it is in the best interests of that member, such as amounts that would otherwise have been transferred to an ERF.
Now that is something we are happy to say is a very good idea.