The Turnbull Government’s latest shake-up to the default super sector includes toughening up the MySuper licensing regime, forcing all funds to host annual member meetings and making it easier for members to opt-out of automatic insurance cover.
A statement released by Minister for Revenue and Financial Services Kelly O’Dwyer on Monday July 24 confirmed that, as reported in the media last week, the Australian Prudential Regulation Authority (APRA) is set to be given greater powers to intervene in the running of default super funds that are found to be in breach of their duties to act in their members’ best interests.
“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,” O’Dwyer said.
Default super funds are regulated under APRA’s MySuper licensing regime. Under the new rules APRA will have greater capacity to take preventive and corrective action, or in extreme cases revoke a MySuper licence, in cases where it has prudential concerns about a fund or if a fund is not acting in the best interests of members.
At the heart of the planned changes to the MySuper rules is an expansion of APRA’s ‘scale test’, which the prudential regulator uses to assess the overall governance and performance of default funds, into a broader based ‘outcomes test’.
Australian Institute of Superannuation Trustees chief executive Eva Scheerlinck said some time was needed to closely examine the proposal to ensure the new outcomes test did not lead to the MySuper licensing regime becoming too focused on fees.
“What really matters most to members is the amount of super they have at retirement,” Scheerlinck said. “When assessing and comparing MySuper funds, the paramount factor must always be long-term net returns.”
The package of changes will also force super funds to hold annual member meetings.
O’Dwyer said this would make funds “more accountable to consumers” and was consistent with the longstanding requirement for the public companies, in which super funds invest their members’ money, to hold annual shareholder meetings.
The new requirement on super funds to host annual member meetings is not expected to meet much resistance, and Scheerlinck said AIST would back it.
“Providing a means for members to engage with the people managing their hard-earned superannuation is a good way to identify those issues which are of most interest to members,” she said.
Group insurance shake-up
More controversially, the government has also tasked APRA with making it easier for consumers to opt-out of automatic life and disability insurance policies provided through superannuation.
This follows the introduction of the Financial Services Council’s Life Insurance Code of Practice earlier this year, and comes as the Insurance in Superannuation Industry Working Group is developing a code of conduct to improve standards in group life insurance.
“Default life insurance is a critical component of superannuation and is often the only insurance that members have,” Scheerlinck said. “While we welcome moves to simplify the opt-out process, there is a significant need to educate the public about the benefits and importance of insurance.”
FSC chief executive Sally Loane called group insurance via super “an important piece of public policy and a valuable safety net” that delivers benefits very efficiently and effectively for millions of Australians.
“However, the FSC supports reforms that make it simpler for those people who don’t wish to have insurance cover inside superannuation to opt out if that is their choice. Consumers do need to fully understand the ramifications of opting out – and once they understand that, we support giving them easier options to do so,” she said.
Tougher penalties for trustees
Other changes announced as part of the package include requiring funds to provide more extensive reporting on how members’ money is spent and how investments are managed, including information on how the fund sets its fees.
As previously announced, the draft bill also includes planned changes to make super fund trustees who breach their duties to members subject to the same civil and criminal penalties as directors of ordinary managed investment schemes.
Another change included in the draft bill that has previously been announced is a move to close a legal loophole that O’Dwyer said has been exploited by “unscrupulous employers” to short-change some employees who chose to make voluntary super contributions via salary sacrifice.
“Many of the measures in this package have been recommended by past reviews into superannuation, commissioned by both Coalition and Labor governments. These are sensible reforms that are already being embedded in the practices of high performing funds,” O’Dwyer said.
“This is why we tasked the Productivity Commission to undertake a review of the system last year. The Government will consider if any further changes to improve the superannuation system are required in light of any recommendations made by the Productivity Commission.”
A consultation on the Draft Bill is due to run for less than three weeks, with submissions closing on August 11, 2017.
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