The Productivity Commission has released a major report into Australia’s superannuation system, and in it identified 31 recommendations for overhauling the system. Here’s what you need to know.
Now, there’s no guarantee that all – or any, for that matter – of these recommendations will be adopted.
The Productivity Commission is the Australian Government’s independent research and advisory body, and as such, the Government of the day will need to adopt and pass the recommended policies.
But here’s a summary of the 31 recommendations that landed on their desk with a thump.
1. Less default accounts
Employees should only have a default superannuation account created for them if they are new to the workforce or do not already have a superannuation account (and if they don’t nominate a fund of their own).
2. A ‘best in show’ shortlist
A ‘best in show’ shortlist of up to 10 superannuation products should be presented to all employees who are new to the workforce so they can choose a product.
3. Independent expert panel for ‘best in show’ selection
An independent expert panel should be created to run a competitive process to develop the ‘best in show’ shortlist.
4. Elevated MySuper and choice test outcomes
Federal legislation should require all APRA-regulated superannuation funds to undertake annual outcomes tests for their MySuper and choice offerings with clear benchmarks.
5. Clean up the amount of multiple accounts
All superannuation accounts with balances under $6000, or 13 months or more of inactivity, should be automatically consolidated into one account by the ATO.
6. An easy-to-use dashboard for all products
A simple, single-page product dashboard for all superannuation investment options should be made available to consumers on an Australian government website.
7. Delivering dashboards to members
The ATO should provide a link to a member’s single page dashboard via its centralised online service.
8. A clearer definition of ‘advice’
The Corporations Act 2001 should be amended to ensure that the term ‘advice’ can only be used in association with ‘personal advice’ – that is, advice that takes into consideration personal circumstances.
9. Evaluation of financial literacy programs
The Australian Government should comprehensively evaluate the programs it funds that aim to improve the financial literacy of Australians.
10. Reassess the need for a retirement income covenant
The Australian Government should reassess the benefits, costs and detailed design of the Retirement Income Covenant.
11. More useful information for pre-retirees
All superannuation members who reach 55 years of age should be prompted to visit the ‘Retirement and Superannuation’ section of ASIC’s MoneySmart website.
12. Stronger safeguards on SMSF advice
Specialist training should be required for persons providing advice to set up an SMSF, as well as other safeguards.
13. Roll out the consumer data right for superannuation
The new Consumer Data Right – which gives Australians greater control over their data in the banking, energy and telecommunication sectors – should be rolled out in the superannuation sector.
14. Limit all fees to cost-recovery, ban trailing commissions
All fees charged by APRA-regulated superannuation funds should be levied on a cost-recovery basis. A ban on trailing financial adviser commissions in superannuation should also be put in place.
15. Opt in insurance for young and inactive members
Insurance through superannuation should be opt-in for members under 25 years of age. Insurance cover on accounts should also cease if no contributions have been made for the past 13 months.
16. Insurance balance erosion trade-offs
The trustees of all APRA-regulated superannuation funds should articulate and quantify the balance erosion trade-off determination they have made for their members.
17. Binding and enforceable insurance code of conduct
A joint regulator taskforce, including members from ASIC and APRA, should immediately be established to implement and advance a binding and enforceable insurance code of conduct.
18. Independent inquiry into insurance in super
An independent public inquiry into insurance in superannuation should be commissioned, which would evaluate the effectiveness of initiatives to date.
19. Regulation of trustee board directors
APRA should amend its prudential standards to provide greater regulation of trustee board directors.
20. Disclosure of merger activity
Trustee boards of all APRA-regulated superannuation funds should disclose to APRA when they enter a merger agreement with another fund.
21. Capital gains tax relief for mergers
Superannuation fund mergers and transfer events should be given relief from capital gains tax liabilities.
22. Definition of best interests duty
The definition of what it means for a trustee to act in members’ best interests under the Superannuation Industry (Supervision) Act 1993 should be amended to be clearer.
23. Australian Prudential Regulation Authority (APRA)
APRA should focus more on matters relating to licensing and authorisation, ensuring high standards of system and fund performance.
24. Australian Securities and Investments Commission (ASIC)
ASIC should focus more on the conduct of superannuation trustees and financial advisers, and on the appropriateness of products and disclosure.
25. Clarify regulator roles and powers
The Australian Government should clarify the roles, strengths and suitabilities of APRA and ASIC when it comes to regulating superannuation.
26. APRA capability review
The Australian Government should immediately initiate the independent capability review of APRA to measure its efficiency and effectiveness.
27. Superannuation data working group
A permanent superannuation data working group should be established – comprised of APRA, ASIC, the ATO, the ABS, and the Commonwealth Treasury – to improve the consistency and collection of superannuation data.
28. An independent member advocacy body
Federal funding should be provided to support an independent superannuation members’ advocacy and assistance body.
29. Ongoing review of the super system
APRA and ASIC should jointly produce a ‘State of Superannuation’ report every two years on the performance of the superannuation system.
30. Independent inquiry into the retirement incomes system
An independent public inquiry should be commissioned into the role of compulsory super in the broader retirement incomes system.
31. A steering group to oversee implementation
A steering group of departmental and agency heads should be established to oversee the implementation of these recommendations.
And of course, if you’d like anything in the report explained to you, feel free to get in touch with us anytime.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.