While the Coalition Government headed into the recent election with a superannuation-lite agenda, there is no escaping the meaty issues it will have to deal with in its third term.
Let’s start with the royal commission recommendations. Aside from its wavering on the recommendation for a crackdown on mortgage broking commissions, the Coalition pledged to fully implement the rest of Commissioner Hayne’s recommendations – all 75 of them.
This includes reducing life insurance commissions to zero; banning the hawking of super products; and banning super funds from doing anything that may influence an employer to nominate the trustee’s super fund as the default fund for their employees.
So far, the Coalition’s response has been tepid at best. Its draft legislation to ban the grandfathering of commissions to financial planners has serious flaws: many consumers will still be exposed to conflicted financial advice.
The new Morrison ministry must not back away or go soft on ensuring consumers are protected from the egregious practices the Commission unearthed in financial services. It must respond appropriately, in a timely manner and respect the true spirit of the Commission’s recommendations.
The Coalition will also need to follow through on its commitment to the current timetable to lift mandatory super contributions to 12 per cent, beginning with the legislated increase to 10 per cent on 1 July 2021 and increasing to 12 per cent by 1 July 2025.
While it’s an open secret that some Coalition members are ideologically opposed to compulsory superannuation, as recently as last November, Scott Morrison said there was “no plan” to change the timetable. To ensure all working Australians retire with an adequate amount of super, we will hold the Prime Minister accountable to his word.
The new minister for super will need to quickly get across some of the more complex legislative and regulatory issues the industry is currently grappling with. There is broad agreement across the industry that key aspects of the Protecting Your Super package are unworkable.
Long list of concerns
Both the industry and the regulators have a long list of concerns.
This includes confusion about key definitions relating to auto-consolidation and insurance which raises questions about funds being able to meet fast approaching implementation deadlines. Clarification and possibly technical amendments to the legislation are urgently required to provide the industry with certainty and ensure the best outcomes for fund members.
There is also the broader issue about the equity in superannuation to consider. There has been a lot of focus on the impact of Labor’s ill-fated franking credit proposal on middle income retirees, but changes to the Age Pension asset test (contained in Tony Abbott’s 2015 budget) have – and will continue to have – far more adverse consequences for the retirement outcomes of middle Australia.
The way the asset test impacts on retirement income is complex and therefore not always widely understood. But as more retirees reach pension age, we can expect community anger about the harshness of the test to grow. The asset test creates a disincentive to save. It is threat to the integrity of our super system and needs to be addressed with a less severe taper rate.
And while Labor headed into the election with a package of reforms to improve retirement outcomes for women, the Coalition has so far resisted calls to introduce specific measures to tackle this issue. This includes resistance to removing the $450 monthly income threshold for compulsory super contributions or paying super on government-funded paid parental leave.
Disclosure is another policy area that warrants urgent attention.
As the Productivity Commission has pointed out, there are millions of Australians languishing in underperforming funds. More needs to be done to help people compare how their super fund stacks up, particularly for those in the Choice sector, which is less regulated than MySuper.
The Commission has also raised concerns about the overall performance of the self-managed super sector. While SMSFs can deliver good value for those with big balances, they are generally not delivering for those with balances under $500,000. Clearly, SMSFs have been oversold. Given that failure in the SMSF sector impacts all Australians in the form of higher pension outlays, there is now a strong case for an inquiry into this sector.
AIST will be resuming our advocacy on all these important issues. We aim to work productively with the Coalition Government on a ‘to-do’ list that is anything but ‘lite’.