Just days after the government’s Your Future, Your Super legislation was criticised for excluding most retail super funds from annual performance reviews, regulators ASIC and APRA have moved on the issue.
In a letter to all superannuation funds the two regulators described their new measures as “transformative regulatory changes that will have a significant impact on every [super fund]’s operations and product offerings”.
The measures include member obligations (MOs) to be administered by APRA, with scrutiny of fund offers beginning from December 31 and the first assessments to be completed early in 2021.
The measures also include product design and distribution obligations (DDOs) that will be administered by ASIC and will apply from October 5 2021.
DDOs are aimed at the $881 billion ‘choice’ super fund sector where members, often with the aid of advisers, choose particular options for their retirement savings.
What’s at stake
The MO obligations are focused on super funds’ general business operations and strategic planning. They demand funds constantly improve the efficiency and efficacy of their operations “to deliver quality outcomes for members holding MySuper products or choice products,” the letter reads.
Meanwhile, DDOs demand “choice products to be designed for an identified target market of consumers, and require RSE licensees to take reasonable steps in distribution that will, or are reasonably likely to, result in distribution to that target market”.
The Hayne banking royal commission discovered multiple examples of inappropriate products being sold to super fund members. The overcharging of superannuation insurance products by AMP, CBA and BT, for instance, has sparked a $500 million class action for aggrieved members.
Commissioner Hayne also discovered CBA had superannuation products that were so poorly designed, they continued to charge fees to the estates of dead people. CBA also had products that charged higher fees on cash option super accounts than they earned in interest.
The DDO arrangements could help regulators count administration fees for choice funds, which are excluded from performance testing arrangements under the new legislation.
However, Labor’s shadow assistant treasurer, Stephen Jones, said: “If that’s the aim, it’s a very roundabout way to go about it.”
Not all bases covered
Mr Jones said although the move by ASIC and APRA could help improve outcomes for members, it did not make up for the fact the performance reviews introduced by the new legislation excluded some superannuation funds.
Under the new laws due to be voted on next year, administration fees are left out of the calculation for fund performance.
Meanwhile, choice funds are left out of the measure for at least a year and non-trustee directed funds will never be included under the legislation as it stands.
“We want to see increased performance across the super sector with lower fees and charges for all members,” Mr Jones said.
There is no good reason to exclude choice products from performance measurement.”
Industry Super Australia CEO Bernie Dean said the new measures introduced by the regulators were a positive move.
“The Productivity Commission found the “Choice” sector was littered with lousy performing products that had excessive fees, [so] further scrutiny of the sector is welcome and necessary,” Mr Dean said.
But the super reforms before Parliament were still inadequate, he added.
“It is simply unacceptable that the government’s proposed super reforms shields more than $800 billion in ‘Choice’ assets and 70 per cent of the for-profit retail sector from performance benchmarks,” he said.
“The millions of ‘choice’ sector members deserve to know if they have been sold into a dud.
“Unless the Your Future, Your Super legislation is changed they won’t and it could cost them hundreds of thousands at retirement.”
Superannuation Minister Senator Jane Hume was unavailable for this story.
The New Daily is owned by Industry Super Holdings