The Federal Government will Monday announce an overhaul of laws governing superannuation funds for the first time since compulsory super was introduced in 1993.
The changes are designed to give ordinary Australians more control over their retirement nest eggs and will hand the Australian Prudential Regulation Authority (APRA) sweeping new powers to intervene, if needed, in the regulation of funds.
The Superannuation Member Outcomes Package will focus on rules governing the compulsory 9.5 per cent employer contribution to workers, with the overall super system now valued at more than $2 trillion.
The overhaul comes as the Government continues to deal with scandals from the banking sector, while rejecting calls from Labor for a royal commission.
Financial Services Minister Kelly O’Dwyer told the ABC’s AM program that, in addition to providing better choice for consumers, the package was aimed at weeding out unlawful and unethical behaviour in the banking sector.
“The Government is also focussed on making sure that we clean up the scandals that have existed in the banking sector,” Ms O’Dwyer said.
Under the changes, Ms O’Dwyer said APRA will be given stronger powers to pressure funds and trustees to act in the best interests of Australian workers with a mandated “outcomes” test.
“There aren’t enough protections to ensure that superannuation is being managed in the best interests of members,” Ms O’Dwyer said.
“We need to give everyday Australians more control over their superannuation providers and we need to have an even stronger regulator to make sure the foundations are right.”
In the leadup to today’s announcement, Ms O’Dwyer announced that employers would be prevented from using a legal loophole, where salary sacrificed super contributions can be held back to boost a business’s cash flow.
Easier opt-out of life insurance
The changes will also target life insurance premiums that are automatically packaged into superannuation and how consumers can opt out, if they do not want or need cover.
“The reason this is important is because so much of their retirement income can be eroded through fees and charges,” Ms O’Dwyer explained.
“You’d be horrified to learn that in today’s day and age a lot of people can’t simply pick up the telephone or get on line and simply opt out.
“This is particularly a problem for younger people with part time jobs, maybe working for a supermarket, and a lot of those younger Australians don’t realise that they’re paying premiums that they will never get the benefit of.”
Earlier this year, a report from the Insurance in Superannuation Working Group, chaired by industry veteran Jim Minto, found that super balances were being eroded by unnecessary life insurance.
The super overhaul comes as the Federal Government also seeks to reintroduce legislation to ensure independent directors comprise a third of superannuation funds.