Bernie Dean, head of Industry Super Australia, says the key superannuation changes the Senate passed late last week are only the beginning of much-needed wider reform.
“Unpaid super is still a blight. It is a systemic problem and it needs to be resolved and we are calling on this Parliament or the next to force employers to pay super at the same time they pay wages,” Dean warns. Trustee conflict also looms large on his agenda.
Two superannuation bills – Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 and Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2019 – were passed last Thursday, after the Morrison Government forged a deal with Greens.
In an interview with Investment Magazine, Dean called the new legislation “a mixed bag”, although he conceded that Parliament had dealt with some of the big systemic problems that have long been a drag on millions of people’s super savings accounts.
The Protecting Your Superannuation Package bill results in a cut in fees for low-balance accounts. It features the scrapping of exit fees and a cap of 3 per cent on fees for account balances below $6000.
The automatic consolidation of inactive accounts under $6000 from July 1 this year is a big win for ISA, which has long lobbied for the change, Dean says.
“We are pleased to see the government taking on amendments that will actually reunite those lost and forgotten low-balance accounts with people’s active accounts within a month,” he said. “Coupled with fee caps for accounts under $6000, these measures will have to do the heavy lifting to prevent erosion of small account balances.”
Canberra’s superannuation reform for low-balance accounts, predicted to save about 7 million Australians $570 million in the first year, has already seen its first casualty. AMP said Canberra’s super reforms for low-balance accounts would hit its 2019 operating earnings for about $10 million, rising to $30 million from 2020.
The earnings impact will predominantly be in AMP’s Australian wealth management business, which will be required to transfer about 370,000 low-balance superannuation accounts to the Australian Taxation Office, the embattled wealth giant has stated.
Dean is far less thrilled, however, with the state of progress on the insurance front. While opt-in life insurance was secured for inactive accounts, he said, Parliament failed to deliver the maximum benefits to members.
The lobby group head was referring to the estimated $3 billion in consumer savings from eliminating default insurance inside super for people aged under 25 and on low-balance accounts.
“It was disappointing that explicit changes intended to protect young and low-balance members from unnecessary insurance were completely dropped from the final bill,” Dean said. “While additional safeguards were definitely required, removing the provisions completely was not necessary.
“Regardless, industry super funds will strive to ensure default insurance arrangements remain cost-effective and matched to the insurance needs of members, taking into account age and other factors, such as occupational risk.”
Closer tabs on underperforming funds
The second bill the Senate passed last week – Improving Accountability and Member Outcomes in Superannuation Measures No. 1 – places greater scrutiny on poorly performing, choice superannuation products.
Dean said this law would push the regulator to put funds “through the mill” and test whether they are delivering good value for their members.
“Trustees who fail to operate in the best interest of fund members will now have little place to hide,” he said.
Referring to the royal commission final report, Dean pointed out that people were surprised the inquiry didn’t go further on trustee conflicts, given the evidence presented during the hearings. But the Industry Super chief said it was unusual for an inquiry of this sort to deliver every answer to every problem.
He viewed the royal commission report as an important next step to push public policy to where it should be – encouraging government to strike the right laws and regulatory arrangement so Australia eventually deals with hard topics like conflicted remuneration and trustee conflict.
“We support many of the royal commission recommendations. We were pleased that the commission didn’t mandate that the structure of a super board take on particular features,” he said. “The debate over the industry super member-first model has finally been put to bed and there should not be any further argument on this.”