Delay on consumer disclosure in super will hurt member retirement outcomes. The royal commission into financial services highlighted the detrimental impacts of people being sold into underperforming superannuation products.
But it’s starting to seem like no one was paying attention.
One obvious way to improve outcomes across the super system is to ensure that consumers have a better idea about the products they choose. As it stands now, many members of poorly performing choice (non default) super products are completely in the dark. Many people would have no idea they are in a dud product.
There is no easy way to compare Choice products. And there is no pressure on the providers of these products to change this.
So, it is perplexing and a huge disappointment that the Australian Securities and Investments Commission (ASIC) last month announced a delay for up to four years in the development of Choice product dashboards, because government had failed to finalise the necessary regulations.
The delay represents yet another setback for key disclosure requirements that have been subjected to ongoing delays since 2015. These requirements would have made it mandatory for super funds to provide a standardised disclosure of fees and performance, called product dashboards, for all their super products.
Currently, funds must only provide this disclosure for their default (MySuper) products.
While ASIC rightly notes that it cannot implement the Choice dashboards without government regulators, talk of a four-year deferral sends an unfortunate, and perhaps unintended, message that better disclosure in the Choice sector shouldn’t be a priority.
In a post-royal commission world, where the underperformance and lack of comparability of superannuation options was called out as a major failing of the system, we would hope that Choice dashboards would be prioritised as a response.
AIST research indicates that many people in choice products are receiving lower returns, paying higher fees, but have no mechanism to compare their fund to others.
Poorly performing funds
The Productivity Commission’s final report into the efficiency of the superannuation system drew a similar conclusion and recommended introducing Choice dashboards as soon as possible.
The Commission estimated that more than one third of Choice products were underperforming.
Almost all funds found to be underperforming in the Commission’s own sample survey of Choice products were retail bank or insurance owned super funds.
ASIC has a key role to play in raising consumer disclosure as a priority. The push for regulations around the Choice dashboards needs come from the regulator.
This is particularly important in an election cycle where a new incoming government may be more predisposed to finalising those regulations. The new member outcomes requirements that passed through the parliament in early April will at least require funds to benchmark and report on the member outcomes of Choice products.
This is a positive step, but will not assist consumers in the short-term.
It will provide better visibility to the regulator only. Over the years, there has been so much focus on the default funds that it is easy to forget there is significantly more super money invested in the Choice sector – about $1 trillion of assets, compared to about $680 billion in MySuper.
In a modern, compulsory super system, there is no place for caveat emptor. The system can and should be better when it comes to consumer disclosure and this needs to be resolved quickly, not at a horse-and cart pace.