Super funds will be forced to enhance disclosures on fees and performance. Consistently underperforming super funds will be prohibited from receiving new members.
Australia has introduced a number of superannuation reforms in its Federal Budget, in part aimed at address recommendations of the Productivity Commission and the findings of the Royal Commission.
Among the reforms, existing superannuation accounts will be ‘stapled’ to members, avoiding the creation of a new account when they change employment.
This is aimed at reducing an estimated AUD 450 million a year in “unnecessary fees” members pay as a result of 6 million duplicate or redundant super accounts, Treasurer Josh Frydenberg said in his budget speech.
The government estimates there will be 2.1 million fewer accounts created over 10 years, saving an estimated AUD 2.8 billion for employees. Employees will, however, still be able to switch super accounts at their discretion.
The reforms also introduce benchmark testing, to be conducted by APRA (Australian Prudential Regulation Authority) annually starting from July 2021. MySuper products will have to notify members of their underperformance, and those that underperform for over two consecutive years will be prohibited from receiving new members until they improve.
The benchmark testing data will also be included in a new online tool that will enable employees entering the workforce for the first time to compare MySuper products based on fees and performance before selection. Under the budget, the ATO (Australian Taxation Officer) will be allocated AUD 159.6 million to develop the new tool, to be called ‘YourSuper’, by June 2025.
“Poor performing funds will have nowhere to hide and will be required to notify their members of their underperformance,” Frydenberg said.
The reforms will also include legislation to ensure that super funds are acting in the best interests of members, where any expenditures must be motivated “solely by the best financial interests of members”. Super funds will also be required to disclose how they are spending members’ money, as the government seeks to improve accountability and transparency.
Lawyers and trustees argue that super funds already act in members’ best financial interests, as the obligation is enshrined both in superannuation law and in APRA’s prudential standards, and that the budget measure will lead to higher administration costs which members would ultimately bear.
There is also some concern with stapling members to a single fund. Industry Super Australia chief executive Bernie Dean says the measure could leave employees “stuck in a dud fund for life”, costing them hundreds of thousands of dollars by retirement.