Industry funds have launched an extraordinary attack on the government’s proposed changes to default superannuation, accusing it of favouritism for bank-owned funds.
In a submission to Treasury on Friday, Industry Super Australia argued that the super overhaul announced in July ignored the “long-term systemic underperformance of the retail sector”, and would unfairly benefit the big banks.
“The reform package would increase the regulatory burden on industry and other not-for-profit super funds, yet allow bank-owned and other retail funds to resist scrutiny and reform,” ISA wrote.
“[It] is an example of both the government’s inability to impose real reform on the big banks, and its determination to shoulder industry and other not-for-profit funds out of their way.”
The legislative changes proposed by Financial Services Minister Kelly O’Dwyer earlier this year would largely impact on default ‘MySuper’ funds, where many workers are sorted automatically by their employer.
These funds are a basic, low-cost version of superannuation, with a single investment option, a minimum amount of life insurance cover, and standardised disclosure of fees.
Since January 2014, employers must by law put your super into a MySuper fund if you don’t choose a fund yourself.
Popular MySuper funds include CareSuper, Commonwealth Essential Super, Virgin Super Essentials, Hostplus balanced option, UniSuper Balanced, and Cbus MySuper.
After the MySuper scheme began in 2014, many industry funds, such as CareSuper, simply converted their existing low-fee options into MySuper-approved products.
Australians have approximately $473 billion in MySuper funds, compared to $768 billion in funds they have chosen themselves.
According to ISA, the average three-year return in MySuper funds is 8.92 per cent – higher than the 7.67 per cent return in funds Australians choose for themselves.
Under the government’s proposed changes, prudential regulator APRA would more stringently monitor the performance of MySuper funds, and be given the power to strip these funds of their MySuper licence if they failed the test.
APRA would require MySuper funds (most of them not-for-profit industry funds) to detail how fees are set and how members’ money is spent. They would also be required to run annual member meetings in the same way public companies do for shareholders.
ISA, the advocacy body for industry funds, characterised the changes as an unfair attack on their members.
“On face value, the high-level objectives of the bill seems quite reasonable, but regrettably this reform package requires significant amendment to deliver on its potential to improve member outcomes, accountability and transparency,” the advocacy group said in its submission.
“It is unfathomable why the reform package has disregard for improving member outcomes in the poorest performing parts of the industry administered by bank-owned super funds whilst imposing further scrutiny largely on not-for-profit funds.”
The centrepiece of the government’s plan is the expansion of APRA’s ‘scale test’, which the regulator uses to assess the governance and performance of default funds, into a broader ‘outcomes test’.
ISA said this broadened test should be applied “to all superannuation products”, not just MySuper funds that are mostly not-for-profit.
“This type of test is equally pertinent, if not more pertinent, to the choice sector because choice products have generated lower average net returns than MySuper products since inception.”
ISA also argued the changes were ambiguously drafted and inconsistent with other corporate legislation.
* The New Daily is owned by a group of industry super funds