The federal government has announced the biggest overhaul of laws governing super funds since compulsory super was introduced in 1992.
Under new legislation to be introduced later this year, regulators will have new powers to ban poorly performing super funds from the MySuper system that receives 60 per cent of all super contributions.
There will also be closer oversight of fund performance.
In what is the first overhaul of super fund governance since compulsory super was introduced, funds will also have to release more detailed and transparent reports on management, how they set fees and how members’ money is being spent.
Super fund directors will also face beefed up criminal and civil sanctions for breaching duties to members or using their positions for personal benefit.
Where the Australian Prudential Regulation Authority believes a fund is not acting in the interests of members, it will be able to cancel MySuper authorisation and intervene to force changes to protect members.
Super funds will also have to hold annual meetings for members, just as public companies do for shareholders.
The new legislation will also include the closure of a legal loophole that allows employers to substitute workers’ voluntary salary sacrifice contributions for the super guarantee payments they are obligated to make. This loophole is estimated to cost workers as much as $1 billion a year.
“This comprehensive package will help deliver all Australians a strong and modern superannuation system that is solely focused on outcomes for all Australians who rely on these funds to secure their retirement,” Kelly O’Dwyer, Minister for Revenue and Financial Services, said.
The package has been developed with a clear objective to improve outcomes for consumers.
Given the compulsory nature of superannuation, Australians rightly expect the industry to be held to the highest standards of transparency and accountability, Ms O’Dwyer said.
The legislation will also give APRA oversight of funds changing hands, ensuring transfers of ownership and control are approved by the regulator.
In a move that is likely to be employed by young people, the changes include measures to make it easier to opt out of the life insurance cover that by law is included in all super accounts.
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 new rules will include mandated “outcomes” test that will be used to measure the performance of funds and judge whether they are meeting their commitments to members.
Outcomes tests will consider a range of product features including their insurance and investment strategies, and performance comparisons against other MySuper products.