Regulators have had their powers to protect super fund members boosted, with the passage of new legislation last week.
Till now the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have been hamstrung by a lack of power to move against underperforming or badly managed super funds unless they have broken the law.
Deputy APRA chair Helen Rowell said the legislation significantly boosted the regulator’s firepower.
As a result members will be protected from underperforming funds that could cost them an average of $188,000 over their working lives.
“The new directions power gives APRA the ability to intervene at an early stage before members suffer significant harm,” Mrs Rowell said.
The moves come after criticisms of weak regulatory action over the course of the Hayne banking royal commission.
ASIC will become the toughest cop on the beat with powers that enable it to intervene where it sees companies offering products that represent “a risk of significant consumer detriment”.
Where the regulator has concerns about a product and sees the possibility of preventing or mitigating significant harm, it can take strong action, including banning the product.
Maurice Blackburn lawyer Josh Mennen said “the royal commission demonstrated that some of the problems were due to a lack of oversight by regulators”.
The laws will weigh heavily on the superannuation sector and will cover MySuper [default] and Choice products.
Under the new regime, which will be rolled out over two years, super funds will have to publish an assessment of their products annually to demonstrate they are performing adequately and are targeting their declared market segment.
APRA and ASIC will be able to examine the reports and call out products they think are underperforming or are dangerous in some way.
Funds have previously been able to reject APRA’s calls to merge in the interests of members.
Mrs Rowell said the regulator “will require underperforming funds to merge or exit the industry. If trustees and trustee directors are not willing or able to meet their best interests duties to members, they should be prepared to face serious consequences”.
Industry Super Australia’s deputy CEO Matt Linden said “Australian workers will finally benefit from stronger laws designed to protect their retirement savings from being eroded by underperforming products and funds.”
He said ISA had been involved in protracted negotiations to ensure the changes were far reaching.
“From when the bill was originally introduced in September 2017 Industry Super Funds argued the bill needed to be strengthened to protect members irrespective of the type of super fund or product they were in,” Mr Linden said.
Mr Linden said although it took a Royal Commission and a major Productivity Commission review the bill has been significantly amended to require:
- Rigorous performance benchmarking of individual MySuper and Choice super products;
- Fund level assessments that will expose product complexity and issues with scale;
- Disclosure of hidden investment costs that erode returns; and
- Enhancements of APRA powers to deal with related entities in vertically integrated institutions.
“This sets out the regulatory framework that will pave the way to weed out dud, underperforming super funds and products – giving consumers confidence their savings are being invested in better-performing products,” Mr Linden said.
The New Daily is owned by Industry Super Holdings