Assistant Minister for Superannuation Jane Hume has slammed the $2.9 trillion superannuation industry for its “complacency and inertia,” saying poorly-performing funds have “no place to hide” and that small funds should consider merging.
In a wide-ranging speech to Investment Magazine’s Chair Forum on Wednesday, Senator Hume highlighted long-standing inefficiencies in the industry and outlined the Government’s latest reforms.
Hume, who will also be speaking at Investment Magazine’s Retirement Conference in March, said if the Government is to lift the superannuation guarantee to 12 per cent, it also has an obligation to “chip away” at the inefficiencies.
Hume stated this is easier said than done in a system where there is leakage at almost every step of the superannuation process. She previously worked for the country’s largest superannuation fund, AustralianSuper, before entering federal politics.
“The good news is, we’ve already plugged a number of holes, and my goal is to have this ship watertight and steaming ahead toward the best possible retirement outcomes,” she added.
During the Forum, she hit out at what she called a “large Australian super fund” for hiking administration fees for the second time in 12 months in a bid to offset the costs of the Protect Your Super reforms.
She said the fund – reported to be AustralianSuper – wasn’t alone. “We may need to dig a little deeper to find out the reasons behind fee increases,” she said.
“If smaller funds are lifting fees because they are not big enough to spread the higher compliance cost, they should consider merging,” she added.
Hume argued that with APRA’s heatmap providing nowhere for poorly performing funds to hide, and with cases of repeat under performance funds will feel the pressure to either “lift their game, or leave the field”.
“In other words, trustee directors will have no choice but to look each other squarely in the eye and ask, ‘is our current business model really delivering the best outcomes for our members? Should we be looking to exit or join a different team?”
A big year
Hume said 2020 will be a big year for superannuation because on top of the implementation of all of the Hayne recommendations – 90 per cent will be legislated by mid-year – the government has “a lot of other wood to chop”.
The Assistant Minister said since PYS reforms – introduced to tackle unintended multiple accounts and fee duplication had become a reality at the end of 2019 – the Australian Tax Office has reunited more than 2.13 million lost or forgotten superannuation accounts, worth around $2.8 billion, with their rightful owners.
She added the next logical step was to broaden Canberra’s focus to Eligible Rollover Funds as there were still half a million inactive or forgotten superannuation accounts still sitting in super limbo in ERFs.
Hume said the government will introduce legislation early this year to require trustees to transfer all accounts below $6,000 by 30 June, 2020 and to transfer any remaining accounts still residing in an ERF to the ATO by June 2021.
“As you know, ERFs were designed to act as a temporary home for lost and forgotten super that would quickly and effectively be reunited with members’ active accounts,” she said. “But we have to be honest: they have failed in that objective.”
The Senator also spoke about the extension of the one-off amnesty introduced into parliament last year to allow small businesses who have underpaid super a chance to pay up. The amnesty which initially ran until May 2019 will now be extended.
However, Hume stressed that the amnesty did not reduce employees’ entitlements by one cent, nor did it let employers off the hook.
“Further, our Bill proposes that employers who fail to come forward during the amnesty and who are later found to have historical SG non-compliance will face very heavy penalties,” she said.
Hume also intends removing a law that currently forces the creation of multiple accounts, which will allow members to choose their fund and vote with their feet. “This is an important discipline if we are to shift the complacency in this sector which can lead to some pretty poor outcomes for members.”
Retirement Income Review
Stephen Jones, shadow assistant treasurer, agreed the superannuation system needed some work. Uneven returns, fees and charges, gender retirement balance gaps and the modest retirement savings of low paid workers all demand the attention of government and industry,’ he told delegates.
Turning to the government’s forthcoming Retirement Income Review, he conceded that it was greeted by Labor with enormous skepticism. “This was understandable – it was launched amid a raucous campaign by Government members to cancel the SG increases and abandon the compulsory system for low- and middle-income earners.
“We remain alarmed at this campaign and cautious about the review, but see within it an opportunity to look at the adequacy of the existing payments and the interaction between superannuation and tax and the support provided for a dignified retirement. Its initial discussion paper provided a good and balanced summary of some key issues.”
Investment Magazine’s Retirement Conference will be held on March 31, 2020 at The Fullerton Hotel, Sydney. Please register here.