In a budget surprise, the Morrison government has introduced measures that could tie members to their first super fund through life and bar underperforming funds from taking new members.
The moves are an attempt to end costly multiple super accounts and improve performance for members.
But Labor superannuation spokesman Stephen Jones said under the new system “the risk is members could be tied to a dud”.
“The devil will be in the detail and this government has an atrocious record on super,” Mr Jones said.
Treasurer Josh Frydenberg in his budget address said the superannuation measures would save hundreds of millions of dollars for workers.
“Australians today are paying $450 million a year in unnecessary fees as a result of 6 million multiple accounts,” the Treasurer said.
“Tonight I announce that new super accounts will no longer be automatically created every time a worker changes jobs. Under our reforms, your super will follow you,” he added.
Under the new plan, Australians will choose a super fund when they start work that will follow them through life unless they choose to switch to another.
To facilitate that, the Australian Tax Office will set up a portal called Your Super with a list of suitable funds for new workers to choose from.
“Over the next decade, the reforms announced tonight will reduce waste in the system and save Australian workers $17.9 billion – ensuring your super works better for you,” Mr Frydenberg said.
APRA to decide
In a move that will rock the super industry, regulator APRA will start benchmarking super funds by net performance, and those deemed to be underperformers for two years in a row will be barred from accepting new members.
That will not be the end of the matter, however, as underperforming funds will be able to take members again when their performance improves. The measure will apply to default My Super funds from next July and to all other funds from July 2022.
Super funds will also come under greater scrutiny with “obligations on superannuation trustees to ensure their actions are consistent with members’ retirement savings being maximised,” the budget papers said.
While no details were provided, this is widely believed to be a measure aimed at criticism from some Coalition members who see industry super fund advertising as too political.
Industry Super Australia CEO Bernie Dean said “industry super funds embrace transparency and accountability and I hope the move is evenly applied”.
Mr Dean said the direction of the government’s moves was welcome, but fund choice arrangements needed to be well designed.
“If a member is stapled to a poor performer, it can take years before they become aware of it and could end up costing them hundreds of thousands of dollars at retirement,” he said.
“The low-cost, workplace default system has protected workers from being ripped off by unscrupulous players. These reforms must build on and improve those foundations – not undermine them,” Mr Dean added.
Rather than tying a fund to a member for life, Mr Dean said a better approach would be to ensure super monies followed members in and out of new funds when they changed jobs.
“Stapling the money to a member would remove multiple accounts quicker and more effectively weed out underperformers,” he said.
Ian Fryer, general manager at research group Chant West, said he supported the direction of the changes, saying: “Stapling funds to workers was recommended by the Productivity Commission, but there are complications in delivery. How do you work out which should be the first fund somebody joins?”
To make the system work and prevent people being locked in to underperforming funds, “you would have to make it very easy for people to change funds and easy for them to understand when they should change”, Mr Fryer said.
All commentators The New Daily spoke to said they were waiting to see the detail on fund choice arrangements to get an accurate picture on the desirability or otherwise of the change.
Determining which funds had underperformed would also be complicated, Mr Fryer said.
“It’s a bit scary – do you look at performance over one, five or seven years or a combination of all,” he explained.
“And what do you compare them against – their peers? If you measured funds who went conservative in their market-orientated investments mid-last year they would have come out as underperforming. But if you look at what has happened since then, the view would be very different.”
Ian Yates, CEO of the Council of the Ageing (COTA) Australia lobby group, said while he supported the direction of the changes “we still haven’t seen the Retirement Incomes Review which the government said was going to be the basis of any changes to the system”.
“[The review] has been kicked down the road again and we are calling on the government to release it,” he said.
Xavier O’Halloran, Director of Super Consumers Australia, said the government’s reforms created a better superannuation system for consumers and lifted standards across the sector.
“These reforms will leave more people with more money in retirement,” Mr O’Halloran said.
The New Daily is owned by Industry Super Holdings