The superannuation industry has expressed concern about the government’s planned changes to the retirement saving system.
On Tuesday, Prime Minister Malcolm Turnbull handed down the government’s response to the so-called Murray inquiry, emphasising the need to open up competition in the superannuation sector and better regulate the industry.
Some of the main recommendations accepted by the government included allowing the Productivity Commission to assess the efficiency of super funds, improve employees’ choice of fund and develop better income-stream products for retirement.
“The focus is on ensuring that people, Australians saving for their retirement, have both choice and security,” Mr Turnbull said.
Treasurer Scott Morrison said Australians needed to be “in the driver’s seat” when it came to choosing their funds.
“They shouldn’t be stopped, prevented as they currently are, under various agreements and awards from having their own money going to the fund where they want it to go to.”
But the head of Industry Super Australia said his organisation was “uncertain” as to why the government would get the Productivity Commission probing the industry again, after changes from its last report in 2012 were yet to be implemented.
“When it comes to default super, there already is a process in place to select default super funds,” ISA chief executive David Whitely told The New Daily.
“There is a process in place which was recommended by the productivity Commission in 2012,” Mr Whitely said.
He added: “What is critical [with retirement income products] is that the government ensures the design of the system is one that operates for members’ benefit and not the benefit of market participants.”
Productivity Commission to probe choice, efficiency
According to the government response, the Productivity Commission will immediately begin assessing the efficiency and competitiveness of the super sector.
It will also look into developing an alternative model for a competitive way to allocate default fund members to products.
The response stated: “The government agrees to extend the choice of fund arrangements to more employees by removing the deemed choice for certain enterprise agreements and workplace determinations.”
Assistant Treasurer Kelly O’Dwyer said on Tuesday: “We need to be able to deliver the best possible outcomes for those people who are contributing to their retirement at their retirement and having an efficient, competitive and transparent system will do just that”.
Pre-select retirement income
There will also be a requirement for trustees to pre-select the income product plan for their fund’s members’ retirement.
The government has pledged to improve the range of products available and also the help given to trustees when selecting such a plan.
“It’s not just about ensuring that people have that choice but we give them the tools to make better choices about superannuation,” Mr Morrison said.
“The range of products available at retirement is currently narrow and does not always meet individuals’ needs and preferences.”
Improve super governance, direction
Another measure aims to “improve the governance” of superannuation funds, including a majority quota for independent directors on super fund boards.
There will also be sanctions introduced for “directors who fail to execute their duty to act in the best interests of members, or who use their position to further their interests or the interests of others to the detriment of members”.
The government will also make it compulsory for super funds to publish retirement income projections on member statements using ASIC regulatory guidelines.
The report also said legislation will be drafted across both parties to enshrine the purpose of the super industry.
“We will enshrine the objective of the superannuation system in legislation. This will help align policy settings, industry initiative and community expectations,” the report said.
What the government won’t do
The only recommendation of the 44 from the Murray Report not adopted, was to do with direct borrowing within self-managed superannuation funds.
The inquiry recommended limited recourse borrowing arrangements by SMSFs should be prohibited, but the government will not accept that recommendation for the time being.
“While the government notes that there are anecdotal concerns about limited recourse borrowing arrangements, at this time the government does not consider the data sufficient to justify significant policy intervention,” the government response said.
The government defended the decision to not limit the SMSFs’ borrowing power.
“At this stage it’s just very early days,” Mr Morrison said.
He said the government would watch changes “extremely closely” via industry regulators and act if needed.