The government’s raft of changes to the regulation of superannuation is being sold as a way to give consumers more power over their retirement funds. But, in fact, consumers are unlikely to use these new powers and the changes might not improve super fund performance.
The headline change introduces annual general meetings (AGMs) for superannuation funds. The government proposes these meetings will help fund members hold superannuation fund trustees and executives to account.
But many of us barely glance at our own superannuation account balances when the six-monthly statement appears in our inbox, so it’s reasonable to predict that, of the 15 million or so superannuation fund members in Australia, only a tiny fraction are likely to go to an annual meeting.
And why would we? One reason shareholders attend listed company AGMs is so they can vote on appointments of directors and remuneration of managers. However, superannuation funds are trusts, not public companies, and members won’t have the same rights even if they attend.
Superannuation fund members have virtually no influence over trustee appointments, executive remuneration or other decisions.
Even the industry fund trustees, who are representatives of member organisations in super funds (such as trade unions), are not usually elected by fund members but are appointed by their sponsoring organisations.
If members are consigned to tea and biscuits with the fund chairman, where is the consumer “power” in Financial Services Minister Kelly O’Dwyer’s reforms? It rests mainly with the regulator, the Australian Prudential Regulation Authority (APRA).
The key changes intend to give APRA more responsibility for protecting the interests of superannuation fund members. This is particularly in relation to MySuper – the standardised default superannuation product.
MySuper product fees and investment performance vary widely. APRA quarterly superannuation statistics (2017) report that, in 2015, after MySuper was “up and running”, annual fees and costs on a A$50,000 account balance in fixed-strategy MySuper products ranged from $265 per year to $1085 per year (with a median of A$520 per year).
The investment performance of MySuper products also varies considerably. In the same year, the mean annual investment return (gross of expenses) for single-strategy MySuper products was 8.45 per cent, the bottom 10 per cent receive less than a 5.5 per cent return and the top 10 per cent receive more than a 10.9 per cent.
Under this legislation, trustees of MySuper funds will be obliged to write their own annual report card, assessing options, benefits and facilities offered to their members investment strategies and insurance offers.
In each case, trustees are required to show that they are promoting members’ financial interests. They will have to compare the performance of their MySuper product to that of other MySuper products.
Even though the trustees score their own card, APRA will also examine these, under the threat that the MySuper authority could be cancelled. It’s not clear how much discipline these rules can impose on trustees, but there are some obstacles to implementation and some possible unintended consequences.
The annual peer comparison of investment performance by MySuper trustees will focus on short-term results rather than the long-horizon outcomes needed for a secure retirement.
So the governments’ claim that these changes will “give consumers more power” and strengthen regulation of this large sector are stretching the truth.
This article was first published in full on The Conversation website.