New super laws must adequately address underperforming funds or risk adverse member outcomes
The Morrison Government’s proposed new super laws fail to adequately address underperformance in the super system and could lead to adverse member outcomes, the Australian Institute of Superannuation Trustees (AIST) warned today.
Releasing AIST’s submission response to the Your Future, Your Super legislation, AIST CEO Eva Scheerlinck said while AIST strongly supported the policy intent of the legislation to empower members and hold funds to account for their performance, this would not be achieved without substantive changes to the legislation and additional measures.
Currently in draft form, the proposed legislation requires only some products to undergo performance testing leaving many very poor performing funds without the same level of scrutiny. It also ignores Productivity Commission recommendations to allow the regulator to wind up underperforming funds.
Ms Scheerlinck said existing members of persistently underperforming super funds were most at risk.
“The new laws will see many disengaged members stapled to dud super products where they could languish for years,” Ms Scheerlinck said. “The priorities of this legislation are the wrong way around. Underperformance in our super system must be substantially addressed before any stapling occurs.”
While not intending to downplay the importance of reducing unintended multiple accounts, a SuperRatings analysis in AIST’s submission highlights the importance of addressing super underperformance before stapling begins. Using a hypothetical member with a salary of $73,000 and a super balance of $140,000, the research showed that, after seven years, the member was nearly 40 per cent (or $34,200) better off being in several large high-performing default funds than stapled to one poorer performing fund.
Ms Scheerlinck said the Government’s reliance on consumer disclosure as the primary means to get people to switch out of underperforming super products was another concern.
“When it comes to complex financial products such as superannuation, the Productivity Commission, ASIC and the Hayne Royal Commission have all previously warned about the dangers of relying heavily on disclosure to improve consumer outcomes,” Ms Scheerlinck said. “Rather than putting the onus on individuals to take action on their fund’s underperformance, as per the Productivity Commission’s recommendation the Government needs to give the regulator the power to transfer existing members of all underperforming products to better products.”