The politics of superannuation reforms is ramping up after Assistant Superannuation Minister Jane Hume accused Labor of “putting vested interests before super members”.

Responding to criticism from Labor MPs, super funds and industry analysts about changes to superannuation included in the budget, Senator Hume said “these savings will boost the retirement savings of members so they will have a better standard of living when they retire”.

“However, true to form, rather than supporting these reforms, Labor is looking for any excuse to walk away from them,” she said in a statement.

“What will it take for Labor to put super members ahead of superannuation fund managers?”

Super funds not consulted

The government did not consult super funds before announcing the changes and on Wednesday ruled out the prospect of a formal consultation down the track.

Senator Hume’s office said it would release an “exposure draft” instead.

This means funds will have no opportunity to provide feedback on the reforms before the bill is presented to Parliament.

Labor’s shadow Assistant Treasurer Stephen Jones said a formal consultation process would deliver better outcomes for members.

“You always get a better result if you consult widely with industry and consumers,” Mr Jones told The New Daily.

“If there is no consultation process and they try to ram it through then we will force [consultation] through a senate inquiry.”

Stapling funds to members

The changes announced in the budget include the stapling of members throughout their working life to the first super fund they join – unless they actively choose to change funds.

The policy is aimed at protecting members from inadvertently opening multiple accounts and paying unnecessary fees as a result.

But critics say the move could attach members to dud funds and rid them of vital insurance cover.

The other reforms revolve around underperforming funds.

If passed, financial regulator APRA will measure the performance of funds every year, inform members if their fund is a laggard, and bar funds from taking on new members after two years of poor performance.

Big savings promised

“These reforms will save Australians $17.9 billion over the next ten years,” Senator Hume said.

“That is money that will not be wasted on higher fees, unnecessary insurance premiums and poor returns.

“Instead, these savings will boost the retirement savings of members so they will have a better standard of living when they retire.”

However, Senator Hume did not address criticisms raised by the ALP and Industry Super Australia (ISA) over how fund performance would be measured.

According to government documents, APRA will include investment management fees in the benchmarks but exclude administration fees.

“Administration fees are half of total fees so they are leaving a massive back door open,” Mr Jones said.

“If they ignore half the fees, then in a large, vertically-integrated organisation, it would be easy to define administration fees as management fees so you wouldn’t get a clear picture of performance.”

Research produced by ISA from Productivity Commission data found that administration fees were typically much higher in for-profit retail funds.

Labor and ISA also said the benchmarks will only apply to default MySuper products from July 2021 and to choice funds from July 2022.

However, the choice funds will not include tens of thousands of so-called ‘platform’ funds, which produce investment products based on a vast range of options chosen by clients and usually their advisers.

“It will only apply to multi-asset class investment options outside MySuper products where the trustee has a significant role in the design, completion and management of these options,” ISA deputy CEO Matt Linden said.

So there are vast swathes of retail superannuation products which won’t be subject to any benchmarking or accountability and that’s a very significant worry.”

However, the exclusion of platform products was understandable, according to Ian Fryer, general manager of consultancy Chant West.

“Including a wrap product that might have 600 options is problematic,” he said.

“Most clients won’t be in a single option, they could be in 15. So how do you turn off options that are underperforming when there are so many in platforms?”

Despite the criticisms levelled at the changes, Senator Hume said that “Treasury has estimated that not proceeding with these reforms will cost Australians $5 million a day, or up to $98,000 at retirement for a new entrant into the workforce today.”

The New Daily is owned by Industry Super Holdings