While the Your Future, Your Super (YFYS) performance test was the most controversial aspect of the reform package, the stapling measure designed to prevent the unintended creation of multiple accounts wasn’t far behind. Unfortunately, this measure hasn’t been as effective as intended as a substantial number of multiple super accounts continue to be unintentionally created, making a case for the government to expand the scope of the YFYS review.
The stapling mechanism is addressing only a portion of the problem and further policy work is required to eradicate the unintended creation of multiple accounts. However, it is disappointing the recently-announced review of the YFYS reforms does not include a review of the stapling measures.
The intent of the stapling reform, originally labelled “Your Super Follows You”, was that, upon changing employment, members who didn’t make an active choice would remain with their existing super fund unless they made an active decision to choose an alternative fund.
There were a range of concerns with this reform including how competition would be distorted. Funds with a strong presence in first-job sectors were well-placed to have higher member retention. Some funds were concerned how this would impact their own sustainability.
From a consumer perspective, concerns were raised regarding an effective competition-based mechanism to ensure those first employment funds were top quality. Insurance arrangements were another concern. This related to exclusions which might occur if someone moved to an industry with specific risk factors not covered by their existing super fund insurance arrangements. It also related to the overall design and appropriateness of the insurance offering.
Finally, issues were flagged about an adverse impact on member engagement. A model where employee superannuation engagement activities were coordinated between the default super fund, employer and, in some cases, union, would break down if employees used a broad range of super funds.
What is happening?
In short, the stapling mechanism is working, but is only addressing a portion of the problem and it appears that the portion being addressed may be shrinking.
Prior to YFYS, there were two sources of multiple account creation. One was where the new employee didn’t complete the Superannuation Standard Choice Form (SSCF), whereby their superannuation guarantee payments were placed into a new account with the employer’s default fund.
The other was where a member elected a fund but took no action to consolidate accounts. Whether this second situation should be considered an unintentional creation of multiple accounts is debatable. I suspect it is unintentional for the majority of cases as most consumers would be unaware of the need to consolidate. The YFYS stapling measure was designed to address the first problem but not the second.
So despite the YFYS stapling mechanism, one source of unintended multiple account creation remains and that channel is large and may be growing. This comes about if an employee doesn’t complete the SSCF, an administrative workload is created for employers. It is administratively more convenient for employers to encourage employees to make a choice.
New employees are likely to choose the default fund for a variety of reasons including it is easier than having to find the account details of their existing fund; the new employee doesn’t want to “rock the boat” by creating an extra administrative burden for the employer by choosing a different super fund and the employee may interpret the default as an implicit endorsement by the employer.
In summary, it appears employers are encouraging new employees to complete the SSCF and employees are choosing the default offering. While the policy to protect consumers who don’t complete the SSCF is in place, there remains a likely large and potentially growing number of multiple accounts being created, in most cases, unintentionally.
If the policy intention is to eliminate the unintended creation of multiple accounts, then a further policy response is required. The most obvious solution is some sort of account consolidation mechanism. It could be a tick-a-box on the new employment form. It would likely be more successful if account consolidation was automatic unless an opt-out box was ticked. However there are a range of issues related to personal details, verification and the risk of fraud which need to be managed.
Consumers losing out
As it appears to be playing out, stapling appears to be only having a modest impact on super funds. The status quo remains whereby the bulk of new employees are joining the employer’s default fund. An account consolidation mechanism would result in a quasi-version of the stapling model that many super funds advocated for whereby your super account follows you to your employer’s fund.
But consumers are losing out because multiple accounts continue to be unintentionally created, resulting in issues such as multiple sets of fixed fees and insurance arrangements. The Protecting Your Super reforms provide some protection, and any activities which increase engagement, particularly at the point of changing jobs, can have a positive impact. There is an opportunity for government to do more on this issue by expanding the scope of the YFYS review.